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Confidentiality Agreements and Due Diligence

Margaret L. Meister , Due Diligence in Oil & Gas Transactions

In the due diligence context, the free flow of information is necessary to enable parties to a transaction to meaningfully evaluate whether to proceed. Confidentiality agreements provide the legal and logistical framework for this information exchange. In most transactions, information flows mainly from one party, the provider, to another, the recipient.1 Much of the information disclosed will inevitably be confidential and/or proprietary. Confidentiality agreements can do many things, but on a basic level, a confidentiality agreement serves the provider by protecting the confidentiality and trade secret status of its information. For the recipient, a confidentiality agreement is necessary because without it, the provider may not be willing to share confidential and proprietary information.

Such agreements serve two fundamental purposes. They limit the use of information deemed confidential by a counterparty in a transaction, where often the counterparty may be a direct competitor or someone who could benefit economically from unfettered use of confidential information. Secondly, they prohibit the disclosure of information deemed confidential to other parties, which disclosure could defeat legal protections of such information and cause economic harm to the provider.

The tension between the interests of the provider and the recipient influence the form the con