Circumstances, where confidentiality agreements are necessary
Nowadays, the intensity of competition among the producers of confectionary is crossing the boundaries of imagination. In order to stay competitive, the businesses have to reduce their overheads, while trying to maintain the appropriate quality standards of their products. These research and development activities require substantial funding, and, in order to safeguard their achievements from being imitated by the competitors, the ultimate contents of products are held in the strictest confidentiality (Hasnas, 2006).
Food companies often offer lucrative settlements to those, who have been affected by their products (Maclntyre, 2008). Yet, the majority of such offers have a small, but significant caveat – the contents of these amicable solutions should be kept entirely confidential.
Whatever the restrictions may be, various confidentiality agreements are and will be a highly used tool in today’s business. They are in use for different purposes, ranging from protecting trade secrets of a company to concealing potential customers or suppliers from the competitors. Furthermore, the evolution of intellectual property, as well as the sequential increase of non-tangible corporate assets value is making the role of confidentiality agreements unparalleled in today’s business universe (Keenan & Riches, 2007).
This part of the research paper speaks about the situations, when making settlement awards confidential is justified. Specifically, it discusses that the cases when confidentiality is used to protect intellectual property, when making information confidential is important for avoiding publicity, and when confidential settlement awards can reduce future litigation expenses.
Confidentiality Agreements Protect Intellectual property rights
The first area, where the use of confidential settlement awards and other agreements is justified is protection of the company intellectual property. The practice demonstrates that in today’s vibrant economies intellectual property assets are often significantly more important than physical ‘brick and mortar’ property of the organization.
The idea of intellectual property
The idea of intellectual property refers to the system of various creations of mind, which are subject to legal protection and regulation. Confidential settlements are frequently used to protect different aspects of intellectual property. The most popular forms of intellectual property include patents, industrial designs, copyrights, trademarks, geographical indications, trade secrets and corporate confidential information. Yet, the practice demonstrates that in our case, confidential settlement awards are especially important for protecting those intellectual property assets, which frame technological foundations of a company (i.e. patents, industrial designs, layout-designs, etc.)
Intellectual property and confidentiality agreements (how corporate intellectual property is protected by the confidentiality)
In many cases, a manufacturer is forced to disclose important information during the litigation (Keenan & Riches, 2007). Pleading that the product is not harmful, technical specifications are often revealed, and every technical detail is meticulously analyzed. Even if a lawsuit is lost, the chances are high that the company will not stop operating on the market. Therefore, it should protect its inventions from the use by competitors. Concluding and enforcing confidentiality agreements between a plaintiff and a defendant is a socially justified and effective approach in this regard
Furthermore, the practice demonstrates that in some cases the defendants have to disclose their marketing approaches and strategies. These issues constitute a trade secret. Assuming that the claimant (or vice versa) becomes aware of this information, it may be leaked to the competitors, who will then use it to harm the company. Confidentiality agreement can seriously minimize such risks.
Confidential agreements can help companies and individual to avoid negative publicity
The practice shows that not only intellectual property is important for protecting intellectual property assets of a company, but also it is a good method of protecting reputation of the company, as well as private interests of the individuals. At the same time, the business owners and the lawyers should not forget that the confidentiality clauses and agreements should not violate public policies. Although legal regulation of this issue has not matured yet (Keenan & Riches, 2007), many notable scholars argue that the communal interests should always prevail over the business priorities, and that not a single legal solution, which may potentially harm the people, should be ever applied (Duska, 2007).
There is a strong argument that quite often it is a claimant, who is not interested in making the situation public (Maclntyre, 2008). For example, the fact that a person suffered some form of harm may have negative effect on the future employment opportunities, or his/her personal relationships with someone. In other cases, confidentiality agreements are used to avoid unnecessary publicity, which is also important for some categories of people.
The most important reason when corporations seek keeping their settlement awards confidential is avoiding stigmas on their reputation. In many cases, it takes years to establish a solid presence on the market, while several salient consumer protection case may ruin it in a flash (Hasnas, 2006). In the cases, where the dispute is rather individual than class action (i.e. when no one, but the petitioner only, was harmed) protection of a company good name and reputation via confidentiality clause is entirely justified.
Finally, in some cases negative publicity emanating from the case may outweigh the benefits of a positive judicial award. For example, a celebrity, who is embroiled in the legal proceedings, may lose an attractive offer, which value may be higher than the merits of the dispute. Thus, making the proceedings confidential, or, in an ideal scenario, agreeing on a fully confidential settlement award is the best approach in this regard.
Confidentiality agreements often make litigation difficult, which helps the parties to save time and money
In addition to all pro-confidentiality arguments listed above, it is important to emphasize that in some cases confidentiality agreements will help the parties to avoid bearing heavy litigation costs. Because the party, seeking a judicial remedy, will be restricted in submitting specific evidences by the provisions of the confidentiality agreement, the both potential litigants will receive a good opportunity to save time (which is necessary for the process) and money (which are necessary to cover exorbitant legal fees).
Disadvantages of a litigation and how confidentiality offsets them
Not a single business in the world is unexposed to litigation (Keenan & Riches, 2007). Even multinational corporations with large quality & assurance budgets sometimes produce defective goods, leading to a legal action, and, in the majority of cases, to a settlement. It is natural that the businesses are interested in minimal media attention. However, it is not always evident when settlement agreements may be held confidential, and when it is fair and legitimate to make the public aware.
When no one else knows about hidden defects of a product, the chances are high that it will not turn into a time-consuming and costly litigation. In addition to that, when the case details are protected from the media, social pressure will not affect its outcomes. Thus, the disputes may be resolved in a faster and more effective manner (Maclntyre, 2008).
Furthermore, a typical litigation has the following disadvantages:
Firstly, the prices for legal services in the United States and worldwide are exorbitantly high. In some cases, the legal fees amount to 10-15% of the dispute amount. In the USA only, the legal fees can cost billion dollars. For many small and middle-sized paying $1000 per hour to an attorney is not possible, and a typical litigation often includes a team of attorneys and several thousands of hours to be worked.
Secondly, a typical litigation, especially in the high-tech and pharmaceutical industries may take years to finish. The company operations may be paralyzed during this time, not to mention that the firm may suffer extreme reputation losses during the process. From the side of an aggrieved party, the results of a litigation are often precarious. Large corporations can afford hiring the best lawyers, who can prove that the claim has no merits. Therefore, accepting a settlement award, even if it is veiled by confidentiality, appears to be a lucrative alternative.
Real-life examples
One of the most illustrative examples in this regard includes 2012 settlement by GlaxoSmithKline (the leading international pharmaceutical). In addition to USD 1 billion in criminal penalties, the company paid over USD $ billion in various settlements. At the same time, the aggrieved parties and their lawyers were barred from public divulgence of the procedures and the merits. Pfizer faced a similar situation in 2009, while in 2013 Johnson & Johnson entered into a series of settlement agreements with its consumers for alleged false claims before the FDCA.
At the same time, it is important to remember that both the claimants and the defendants should be vigilant in analyzing the possibility of making a settlement award confidential. The corporations should remember that keeping the process confidential does not protect it from the similar claims made by other customers. The consumers should always remember that by agreeing to keep their awards confidential, they expose other people to corporate violations and condone chronic unethical business conduct.
References
Duska, R. (2007). Contemporary reflections on business ethics. Dordrecht, the Netherlands: Springer.
Hasnas, J. (2006). Trapped: when acting ethically is against the law. Washington, D.C: Cato Institute.
Keenan, D. & Riches, S. (2007). Business law. Harlow: Pearson Longman.
MacIntyre, E. (2008). Business law. Harlow, England: Pearson Longman.
