A special damages exclusion in a confidentiality context prevents a party from claiming special, unusual, or extraordinary damages if confidential information is disclosed in breach of the agreement. Special damages are losses that are not the natural or foreseeable result of a breach—they are unique to the specific circumstances of the injured party. For instance, if a technology company breaches a confidentiality agreement by disclosing your proprietary algorithm, special damages might include the cost of rebranding your entire product line or losing a specific major client who demands exclusivity. This clause essentially says the breaching party will only be liable for general, foreseeable damages (like the cost of litigation or standard remediation), not the unique, exceptional losses you suffered.
This exclusion is particularly problematic in confidentiality agreements because information breaches often cause unpredictable and severe business harm that is difficult to quantify but devastating in impact. The clause shifts the burden of unforeseeable losses entirely onto the injured party, even though the breaching party caused the disclosure. It effectively undermines the protective purpose of the confidentiality agreement by limiting the financial consequences of breach.
Confidentiality agreements should rarely include special damages exclusions, or if they do, they should be narrowly tailored. If you are disclosing sensitive information, resist this clause entirely or at minimum carve out losses related to competitive harm, client loss, or regulatory penalties. If you are receiving confidential information, understand that accepting this clause means you have limited recourse if your breach causes catastrophic but "special" business harm. Consider negotiating for a liquidated damages clause instead, which provides a predetermined amount for breach and is enforceable even if actual damages are difficult to prove.
Frequently Asked Questions
What does this clause mean in simple terms?
A special damages exclusion in a confidentiality context prevents a party from claiming special, unusual, or extraordinary damages if confidential information is disclosed in breach of the agreement.
Why should I care about this clause?
Special damages are losses that are not the natural or foreseeable result of a breach—they are unique to the specific circumstances of the injured party.
What are my options?
For instance, if a technology company breaches a confidentiality agreement by disclosing your proprietary algorithm, special damages might include the cost of rebranding your entire product line or losing a specific major client who demands exclusivity.
How does this affect small businesses?
This clause essentially says the breaching party will only be liable for general, foreseeable damages (like the cost of litigation or standard remediation), not the unique, exceptional losses you suffered.