This clause specifies what happens when one party improperly discloses or misuses confidential information belonging to the other party. Rather than leaving remedies to general contract law, it explicitly outlines the consequences—which typically include monetary damages, return or destruction of confidential materials, and sometimes liquidated damages (a pre-agreed penalty amount). The clause matters because confidential information (trade secrets, client lists, proprietary processes, financial data) is often a company's most valuable asset. Without clear remedies, proving actual damages from a breach can be difficult and expensive. By defining remedies upfront, both parties understand the financial stakes and have stronger incentive to comply.
The clause also usually addresses whether the breaching party must pay the non-breaching party's legal fees and costs to enforce confidentiality. Some versions include "continuing damages" provisions that allow recovery for ongoing harm from repeated breaches. The specificity of remedies can deter breaches more effectively than vague promises to "make things right" later.
When reviewing this clause, ensure the remedies are proportionate to your business risk but not so punitive they become unenforceable. If you're the party protecting confidential information, push for inclusion of attorney's fees, injunctive relief language, and a clear definition of what constitutes "confidential information." If you're the party receiving confidential information, watch for overly broad liquidated damages that could bankrupt you for minor disclosures, and negotiate caps or carve-outs for information that becomes public through no fault of yours. Consider whether the remedies are cumulative (you can pursue multiple remedies) or exclusive (you must choose one).
Frequently Asked Questions
What does this clause mean in simple terms?
This clause specifies what happens when one party improperly discloses or misuses confidential information belonging to the other party. Rather than leaving remedies to general contract law, it explicitly outlines the consequences—which typically include monetary damages, return or destruction of confidential materials, and sometimes liquidated damages (a pre-agreed penalty amount).
Why should I care about this clause?
The clause matters because confidential information (trade secrets, client lists, proprietary processes, financial data) is often a company's most valuable asset. Without clear remedies, proving actual damages from a breach can be difficult and expensive.
What are my options?
By defining remedies upfront, both parties understand the financial stakes and have stronger incentive to comply. The clause also usually addresses whether the breaching party must pay the non-breaching party's legal fees and costs to enforce confidentiality.
How does this affect small businesses?
Some versions include "continuing damages" provisions that allow recovery for ongoing harm from repeated breaches. The specificity of remedies can deter breaches more effectively than vague promises to "make things right" later.