When entering into a confidentiality agreement, it is important to understand the potential consequences of breaching such an agreement. One such consequence includes the possibility of being liable for consequential damages.
Consequential damages refer to the indirect, or secondary, damages that may result from a breach of the confidentiality agreement. These damages may arise from a loss of reputation, loss of profits, or other financial losses incurred by the disclosing party.
For example, if a company discloses confidential information to a third party and that third party uses that information to develop a product in competition with the company, the company may be entitled to consequential damages for lost profits and other financial losses resulting from that competition.
It is important to note that consequential damages may also be incurred by the breaching party. For instance, if an employee breaches a confidentiality agreement with their employer, they may be liable for consequential damages resulting from the loss of trade secrets and other confidential information.
To avoid the potential for consequential damages, it is important to carefully consider the language and provisions of any confidentiality agreement before signing it. The agreement should clearly outline the terms and scope of confidentiality, as well as the consequences for breaching the agreement.
Additionally, it is important to understand the limitations on consequential damages in some jurisdictions. Some jurisdictions may limit the ability to recover certain types of consequential damages, while others may limit the amount of damages that can be recovered altogether.
In summary, understanding the potential consequences of breaching a confidentiality agreement, including the possibility of consequential damages, is critical for all parties involved. By carefully considering the provisions of any agreement and understanding the limitations on consequential damages in their jurisdiction, parties can help mitigate their potential liability and protect their confidential information.