When negotiating a business alliance, you may need to disclose confidential information, such as proprietary technology. This disclosure is often necessary to discuss the details of the potential partnership. However, sharing such information carries inherent risks, including the possibility that the recipient could misuse it, such as using it to develop competing products or services. In some cases, companies might feign interest in a partnership solely to access and exploit your confidential information.

Mitigating Risks Under Japanese Law

Unfortunately, there is no definitive solution to eliminate this risk. Therefore, it is crucial to take proactive measures to minimize exposure. Key strategies include:

1. Limiting Disclosure

Only share the minimum necessary information. Avoid disclosing highly sensitive data, especially if its misappropriation could significantly harm your business.

2. Entering into a Confidentiality Agreement

A confidentiality agreement is a widely used tool to mitigate risks associated with the disclosure of sensitive information. Before any disclosure, parties typically agree on the following points:

– Permitted Use: The specific purposes for which the confidential information can be used.
– Authorized Recipients: Restrictions on who can access the disclosed information.
– Post-Negotiation Obligations: Requirements for the deletion or return of confidential information.

For highly sensitive information, the agreement may include additional safeguards, such as:
– Secure storage requirements.
– Reporting obligations for the recipient.
– Rights for the disclosing party to conduct on-site inspections.

3. Relying on Legal Remedies Under the Act Against Unfair Competition

If misappropriation occurs, it may constitute a violation of Japan’s Act Against Unfair Competition (Fusei Kyousou Boushi Hou). This law provides civil remedies and imposes criminal penalties, offering stronger deterrence against misuse.

Practical Challenges

Despite these measures, enforcing a Confidentiality Agreement can be difficult. Proving a breach often requires showing that the recipient’s new product or technology was developed using your disclosed information rather than their own resources. This evidentiary challenge underscores the importance of limiting disclosure to the greatest extent possible.

This column intends to provide a high-level summary of the subject matter, and it does not aim to provide exhaustive information. For specific issues, we recommend consulting an expert. If you have any query, please contact us via inquiry form in this homepage.