When handling sensitive information in a business context, it is important to understand the differences between information that is considered “confidential” versus “proprietary”. While these terms are sometimes used interchangeably, there are some key distinctions in how the law treats confidential and proprietary information. Knowing how to properly classify and handle sensitive information is crucial for protecting a company’s assets and competitive advantage. This article will examine the definitions of confidential and proprietary information, compare their similarities and differences, and provide guidance on best practices for maintaining confidentiality and safeguarding proprietary information.
What is considered confidential information?
Confidential information refers to any sensitive data that is not publicly known and is shared privately between parties under an expectation of secrecy. Some examples of confidential business information include:
- Customer lists
- Pricing strategies
- Sales figures
- Marketing plans
- Pending mergers and acquisitions
- Unpublished financial data
- Employee personnel records
- Customer data protected by privacy laws
In legal terms, for information to be considered confidential, it must:
- Not be publicly known
- Be disclosed privately and selectively
- Provide commercial value from being secret
- Be subject to reasonable efforts to maintain its secrecy
Information can become confidential if:
- It is shared privately under a non-disclosure agreement (NDA)
- It is protected by an institutional confidentiality policy
- Laws designate certain types of information as confidential (e.g. trade secrets, health records)
Overall, confidential information allows a company to conduct business operations privately without competitors being aware of sensitive details. There is an implicit expectation that recipients of confidential information will not share it without permission.
What is considered proprietary information?
Proprietary information refers specifically to intellectual property or trade secrets belonging to a company. This includes technical knowledge, data, and processes that have commercial value because they are not publicly known. Some common examples of proprietary business information are:
- Designs, formulas, and recipes
- Source code and software
- Patented inventions or technologies
- Trademarked brands, logos, and slogans
- Copyrighted works like books, artwork, film, music
- Scientific discoveries and technical breakthroughs
- Business processes and methodologies
- Algorithmic models and data sets
Legally, for information to qualify as proprietary, it must:
- Originate within the company
- Provide a competitive advantage by being kept secret
- Be protected actively using legal means
Proprietary information is usually protected by legal mechanisms like patents, copyright, trademarks, and trade secret laws. Companies take active steps to prevent proprietary information from becoming public knowledge or falling into competitors’ hands.
Similarities between confidential and proprietary information
While confidential and proprietary information are distinct categories, they share some common characteristics:
- Secrecy – Both types involve sensitive details not intended for public knowledge.
- Commercial value – They provide advantages to a business by being kept private.
- Limited access – Their distribution is restricted on a need-to-know basis.
- Oversight – Policies and agreements govern their permissible uses.
- Protection – Reasonable security measures maintain secrecy and control access.
In practice, some information may meet the criteria for being both confidential and proprietary, such as:
- Product formulas and manufacturing methods
- Customer lists and sales databases
- Business processes and strategic plans
Differences between confidential and proprietary information
While there are overlaps, confidential and proprietary information have some distinct differences:
Basis | Confidential Information | Proprietary Information |
---|---|---|
Definition | Private details and data disclosed selectively under secrecy expectations | Intellectual property providing competitive advantages from secrecy |
Scope | Broad – any unpublished, sensitive business information | Narrow – trade secrets and intellectual property |
Value | Strategic, operational | Technical, innovation-related |
Legal basis | Contractual agreements like NDAs | Patents, copyright, trademarks, trade secrets |
Protections | Contractual obligations, access controls, data policies | Registrations, statutes, lawsuits |
Ownership | Originator or discloser | Creator or inventor |
In summary, proprietary information is a narrower subset of assets legally owned by a company, while confidential information encompasses unpublished details more broadly. Proprietary protections are stronger while confidentiality relies more on agreements and policies.
Best practices for maintaining confidentiality
To preserve the confidential status of sensitive information, companies should:
- Classify data to designate appropriate protections for different types of confidential information
- Require employees, vendors, partners to sign NDAs clearly defining confidentiality requirements
- Limit access to confidential data only to personnel who need it for their job duties
- Store and transmit confidential information securely using encryption and access controls
- Oversee handling of confidential data through data loss prevention monitoring
- Include confidentiality provisions in vendor, partnership, and acquisition agreements
- Develop policies for appropriate data sharing procedures, access approvals, and breach protocols
- Provide confidentiality training to personnel to reinforce a culture of discretion
- Document any authorized disclosures with formal approval and defined scope
- Conduct risk assessments to identify and mitigate confidential data vulnerabilities
Following best practices for classifying, restricting, monitoring, and protecting confidential information is key to preserving secrecy.
Best practices for safeguarding proprietary information
To maintain the value of proprietary information, businesses should:
- Identify intellectual property and trade secrets critical for competitive advantage
- Register patents, trademarks, and copyrights to establish legal ownership
- Limit proprietary information access only to key personnel, never to external parties
- Implement NDAs, secure storage protections, access controls, and encryption for proprietary data
- Enforce strict data policies prohibiting unauthorized external transmission of proprietary information
- Conduct cybersecurity training focused on proprietary data risks like phishing, social engineering, and unauthorized access
- Log proprietary information access, transfers, and usage to enable auditing and oversight
- Monitor networks, systems, and personnel behaviors to identify possible proprietary data theft
- Take legal action against IP and trade secret theft such as filing lawsuits
- Update processes with new proprietary developments to maintain competitive advantage
Vigilant controls and protections for proprietary information are vital for preserving corporate assets and advantages.
Conclusion
While confidential and proprietary information share common traits of value derived from secrecy, they have distinct definitions, legal protections, and scopes. Confidential data encompasses any private details disclosed under limited access expectations. Proprietary information consists of intellectual property assets providing competitive advantages. Understanding these differences allows businesses to properly classify information and apply appropriate safeguards. Following best practices for access restrictions, oversight procedures, legal protections, and security measures enables companies to maintain confidentiality and proprietary data secrecy.