Confidentiality obligations in the parallel universe of M&A

For many technology-based companies, confidentiality agreements (CDAs) are routine documents that present few surprises.  Some of IP Draughts’ clients sign dozens, or even hundreds, of the things each year.  Often, they are signed as a first step in business discussions that may or may not lead to the parties signing a commercial agreement, such as a services agreement, research collaboration agreement, or IP licence agreement. A few issues tend to be negotiated, including duration, and law and jurisdiction, but most of the CDAs that one encounters are mostly on the right lines.

The conventions that are followed in relation to confidentiality in general business discussions do not always seem to flow through into the world of corporate mergers and investment transactions.  As an IP lawyer, IP Draughts has been surprised by some of the differences that he has seen.  They have included:

1. Disclosure of a company’s trading contracts to potential purchasers or investors, despite the presence of provisions in those contracts that forbid the disclosure of the contracts’ terms.  Sometimes this issue is mitigated by limiting the disclosure to access in a data room, without the right to copy the agreements, but this doesn’t affect the fundamental issue  that the documents are being disclosed in breach of a confidentiality obligation.  If the transaction is consummated, perhaps the issue goes away, but in other cases …
2. Brokers and other finance professionals who refuse to sign CDAs, arguing that they must be free to do business with multiple companies in the same market sector, and CDAs would prevent them from doing this. Instead, clients should trust them to behave honourably.  Of course, this doesn’t protect the client, and sometimes highly sensitive, technical information about a client’s products in development is disclosed to these organisations.
3. Other finance professionals who are not willing to sign CDAs whose obligations last longer than a year or two.  This may be okay if only financial information is provided but, again, technology-based companies sometimes find themselves disclosing technical information that is valuable as a secret for much longer periods.  Sometimes, those professionals can be persuaded to agree to a longer period in respect of “trade secrets” but in IP Draughts’ experience this cannot be assumed.
4. Finance professionals who insist (as do some major companies, particularly those headquartered in the US) that if information is disclosed orally, it will only be treated as confidential if it is confirmed in writing within a period such as 28 days.  Yet in practice most of the subsequent discussions are held in meetings and by phone, and no confirmatory record is prepared.  Admittedly this problem is not unique to the financial sector.

Lawyers who work with the financial sector on a regular basis will no doubt be very familiar with its practices, which seem remote from the business world.  IP Draughts wonders whether these practices (of which the terms of CDAs form a very small part) will change in light of the recent upheaval in the world of finance.

What are you seeing?