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“Oh, I Wish I Had Known That Before I Signed!” – Part III

This is the third in an occasional series discussing issues and provisions standard in many types of contracts between healthcare professionals and various entities (this entry: Confidentiality clauses in consulting agreements)

Has this ever happened to you? In my first post, I discussed a consulting scenario—based on actual events—that cautioned against the pitfalls of non-exclusivity/non-competition clauses. In my second post (using the same scenario), I identified the need for a pro-consultant indemnification clause, and cautioned against the inclusion of a pro-company indemnification clause. In this post, I summarize what you should see and what you should not concerning confidential information clauses.

“Uh oh, what have I done?” Ok, you have signed the consulting agreement with the company (the “Company”) for which you will be providing services relating to cardiac arrhythmias. For several months, perhaps even a year or so, little happens concerning your services. Then you receive a grant for research on a new cardiac device from a third party (“Sponsor”) that has the potential to be highly lucrative for you, as well as gaining scientific acclaim for your institution. You perform your research based on information that you received from the Sponsor, achieve success, and plan to publish your results. Unfortunately, the academic buzz surrounding your research has led to the Company filing an injunction to prevent you from publishing your research. Moreover, the Company sues you for damages resulting from you allegedly disclosing to the Sponsor “confidential information” as defined under the consulting agreement! Your culprit was a very broad confidentiality clause in the consulting agreement that essentially covered anything within the field of cardiology that was disclosed to you either by the company or that could be inferred therefrom or otherwise discovered by you during the term of the consulting agreement (regardless of whether such discovery was in the course of performing services for the Company). The Company argues that you breached the consulting agreement by disclosing information related to the Company’s field (cardiac arrhythmias) in performing research for the Sponsor. Now, both you and your institution need to defend your actions at the cost of great legal expense and expenditure of time.

What could have been (or your “saving clause”)… A properly limited confidentiality clause protects the owner of its confidential information from disclosure by others, but is very specific as to what is covered, and contains several exclusions for information that should not receive confidential protection. In this scenario, the disastrous circumstances for you could have been avoided by a clause that clearly defined Company “confidential information” as being limited to information germane to the business of the Company and which is either (1) delivered to you by or on behalf of the Company, or (2) otherwise discovered by you, in each case, in the direct performance of services for the Company under the consulting agreement. Further, such information would not include data or other disclosures received from any other source, including the public domain or which you discover independently.

In our hypothetical scenario, your research was based on data obtained from the Sponsor. Sure, such data was in the field of cardiac arrhythmias, but it did not use or rely on the information that you received from the Company or services you performed under the consulting agreement. Nevertheless, you are now embroiled in a legal battle over whether you can publish the results and, perhaps more problematic, whether you need to pay damages to the Company. However, if you had merely limited the confidentiality provision as described above, this concern never would have arisen or, at least, likely would have been dismissed promptly as a nuisance action instituted by the Company.

“Is this situation avoidable?” Yes. Having proper language in the agreement will ensure that you do not have the headaches associated with the example above. In addition, a proper confidentiality clause should further include a statement that only information delivered to you and marked as “confidential” will be treated under the consulting agreement as “confidential information” and, if such information is delivered to you orally, then it also must be confirmed to you in writing as being “confidential” within some prescribed period of time (e.g. fifteen (15) business days).

“So, what can I do, other than hire a lawyer?” In reading your proposed contract, refuse to accept: any broad provisions that fail to clearly and unambiguously define “confidential information.” Further, insist upon inclusion: a provision that clearly requires such information to be conspicuously marked in writing as “confidential” (or confirmed as such in writing if delivered orally). Other inclusionary provisions (useful clauses not specifically relevant to our scenario, but which you should ensure be present): carve-outs from the definition of “confidential information” that may vary from circumstance to circumstance based on your specific situation. Examples of such carve-outs are information in the public domain, information that you discover independently of providing consulting services, information necessary to prevent harm to the public health, and information subpoenaed by a court or other legal process. You should also have a definitive termination period for the confidentiality obligations (preferably 3-5 years).

Bottom Line: When dealing with agreements in fields within which you practice or research, it is always safest and in your best interests to seek experienced legal counsel. The fees payable before making a mistake are usually much less than fees incurred attempting to fix the mistake after it is made.

Continued good luck in your consulting ventures and, as always, I wish you well!

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