A recent lawsuit filed in federal court in Florida demonstrates the importance of entering into confidentiality and non-disclosure agreements before starting negotiations with a potential buyer, investor, or business partner. 

In GRATUITY SOLUTIONS, LLC and GRATUITY, LLC v. TOAST, INC. (Case No. 2:24-cv-00737), filed August 14 in the United States District Court for the Middle District of Florida, the plaintiffs allege that the plaintiffs and the defendant began exchanging confidential information and trade secrets in 2016 as part of a potential acquisition and/or partnership between the parties, but when the parties later went their separate ways, the defendant allegedly continued to use and exploit confidential information and trade secrets obtained during their period of working together. The defendant has not responded to the plaintiffs' complaint.

While the outcome of this matter remains to be seen, the issue of maintaining confidentiality of proprietary information, especially when considering entering into a new business partnership, is an evergreen concern.

Before providing access to any confidential information or trade secrets, it is imperative to have a written agreement in place to protect such valued information. When reviewing such an agreement, a few recommended components to look for include the following:

• The parties' confidentiality obligations should be mutual;
• The parties' confidentiality obligations should survive the termination of the agreement;
• The permitted use of any confidential information should be limited to purposes of evaluating the specific proposed transaction;
• The agreement should be clear about who may be given access to the confidential information; and
• The agreement should specify how the information should be handled (destroyed, returned, etc.).

Although no confidentiality agreement can guarantee absolute protection in all scenarios, having one in place before exchanging information is a crucial step in any transaction. Any such agreement should be reviewed carefully by an experienced attorney to ensure it adequately addresses the specific needs of the transaction.