Confidential Agreement - Buying a Business - What Does It Mean?

tickettomars on 17/09/2020 - 22:14

Hi guys,

I need some consultation on this. A couple of years ago, I was interested in buying an online business in Adelaide (business A). Basically they imported goods from China and sell them on their website to Australia customers. I signed the Confidential Agreement and commenced the talk with the vendor via the business brokers. I was given financial details, i.e. profit & loss statement, their sale figures. We met and talk in person and I have about 10-20 questions answered. Most of them about how the business was doing for me to make a decision. In the end I decided to end my interest.

Now, fast-forward to 2020 and I'm looking to buy a similar business (let's call it Business B) (online model, different products, just same niche).

My question is would the Confidential agreement (CA) that I signed in the past with business A stop me from acquiring and running business B? Can business A sue me for signing CA and then compete with them later on?

My basic understanding of a confidential agreement is that I cannot use the trade secret acquired during my discussion with the owner of business A to compete with them in the future. Is that true? If so, what is considered as trade secret? Information I acquired during discussion with business A was basically about how the business is doing, like:

  • Revenue, number of orders, average order value
  • Conversion rate.
  • Traffic source percentage (organics, paid, direct, social %)
  • Keyword ranking (which keywords rank the best)
  • Traffic trend (going up)
  • Where marketing money was spent.
  • Where stock is stored, stock value?
  • Online order list to confirm best selling products.
  • What ecom platform?

I'm not sure if any of those can be considered as trading secret? The most important thing is the suppliers' details was not disclosed.

Would it be too hash if someone signed a CA to buy a business and then later on never have a chance to buy/run/start a similar business?
Can someone shine some light to this matter? If you know a good IP lawyer, can you recommend one? Thanks.

Poll Options

  • 19
    Don't worry, CA, NDA means nothing, just do it.
  • 7
    Be careful, work it out with a lawyer
  • 1
    Too bad, you can't do anything similar to compete with them
Financial

Comments

  • Halo375 on 17/09/2020 - 22:26
    +4

    What it means is don’t share the information you’ve received with others or use it in a way that would harm Company A as that is not the reason they shared that information with you.

    It’s retail - I highly doubt they’re doing anything particularly unique and amazing otherwise you would have bought them.

    • tickettomars on 17/09/2020 - 22:46

      Nothing unique in my opinion. Yeah, they trademarked some of the products. They spent money on SEO to rank their site on 1st page of google. They run Google Ads. They have a logistic company fulfilling the orders. The income was good, just that we didn't reach an agreement on the selling price.

  • MrFrugalSpend on 17/09/2020 - 22:29
    +1

    Unless you are stealing their unique ideas, customers, things that would be considered confidential information you can only get from them… or dislosing the information that may cause them harm… I think you would be fine.
    Definitely doesn't stop you buying another business.

    As always, get proper legal advice though…

    And, really think carefully before buying this sort of business - does the business actually have any intrinsic value / goodwill / any assets or guarantee of making money that makes it worth the investment… then ask yourself… if so, why are they selling it?

    • tickettomars on 17/09/2020 - 22:40

      I'm not sure if anything they told me is unique. They trademarked (private branding) some of the designs. They told me they reached an agreement with their supplier to exclusively supply them with the best selling products. No customer information was disclosed.
      The thing is Business B and A are competing in the same niche.
      And thank you, I would definitely take your advice into account, i.e the value of the business and the million dollar question: why they're selling it.

      • MrFrugalSpend on 17/09/2020 - 23:40

        So don't copy their trademarked designs, you don't have customer info anyways, if you can avoid it, steer clear of their supplier if you want to be really careful (but you probably aren't even obliged to if it is a supplier you can reasonably find publicly through other means).

  • [Deactivated] on 17/09/2020 - 22:30
    +1

    Not relevant.

    The purpose of the CA is to prevent the use of the information disclosed to damage the business before the sale.

    Example - if a business is doing badly or not treating their staff right, you cannot approach the staff or any party with the information. The purpose of the information being available to you is purely to be used as a purchase decision.

    • MrFrugalSpend on 17/09/2020 - 22:31
      +1

      yes but it is unlikely to be limited to before the sale (not sure if that is what you meant). Any information OP gained for this purpose should be destroyed/returned once OP decided not to proceed.

      • tickettomars on 17/09/2020 - 22:42

        I will be likely to seek legal advice from an IP lawyer, just to make sure no trouble in the future :).
        Any recommendation?

        • MrFrugalSpend on 17/09/2020 - 23:35

          doesn't sound like you need an IP lawyer, just a general commercial lawyer should be involved in any commercial business purchasing transaction. And as a cursory passing note, flag the previous confidentiality agreement and that you would like confirmation your involvement in B doesn't contradict the agreement you signed for A.
          They'll likely tell you it is not an issue from the basic amount of info i've gleaned from your comments.

          You need to keep in mind lots of things if buying a business as a going concern, always needs a lawyer. You could be inheriting their debts for example or liability for previous mistakes or even obligations for leave to employees. A proper contract dealing with all these matters needs to be done. Its usually an expensive legal process (e.g. I'd expect 5 figures or more for larger businesses just in fees etc).

  • Muzeeb on 17/09/2020 - 22:52

    There's no friends in business.

    • tickettomars on 17/09/2020 - 22:52

      You lost me here MS Paint. :)

    • Sum-Ting Wong on 18/09/2020 - 10:10

      On the contrary, friends in business is very important. It doesn’t mean you need to invite them over for dinner, but certainly having a good network of contacts with whom you have a good rapport with is very valuable in any industry. Your network is your net worth.

      • Muzeeb on 18/09/2020 - 12:26

        There's a difference between friends and people you know.

  • elgrande on 17/09/2020 - 23:01
    +1

    So what made you consider the sex toy industry?

    • Nugs on 18/09/2020 - 05:31

      Lockdown?
      .

  • terlalu on 18/09/2020 - 01:27
    -2

    A trade secret is information that can be used in the operation of a business, that is sufficiently valuable and secret to afford an actual or potential economic advantage over other businesses. For example:

    proprietary processes
    formulae or
    techniques
    compilation of information
    it has to be a secret in the sense that it's not public knowledge or public property and the company must treat it as confidential .

    some of the information you listed are trade secrets, others (eg revenue, where marketing money was spent) generally aren't…

    most confidentiality agreements have a termination term, could be 1 year, or 5 years etc. hopefully you didn't sign a perpetual agreement. also check the agreement as there should be a stated purpose for the disclosure (eg for discussions regarding the sale of the company)

    because you signed an NDA, you can't disclose the information even if Detriment hasn't occurred you are still considered to be in breach (see Wheatley v Bell and Dart Industries v David Bryar). You could be sued for actual damage or injunctive relief etc if you disclosed the information or otherwise used the information for a purpose other that what is stated.

    There are a few defences to a misappropriation of Confidential Information claim, including if the holder of the trade secret publicly discloses the information at a later date (regardless if it's to you or someone else).

    depends on whether or not you thing they will sue you. most likely not worth it to them.

  • lunchbox99 on 18/09/2020 - 08:21

    Ummm… what does the CDA say? Like… read it. What it says is what you are bound to follow. We can't comment here because we have not read your CDA and they are not all the same.

  • mychips on 17/10/2020 - 14:20

    I don't think it means that you can't run a business but rather it is designed to keep the proprietary information from being misused in a particular way - eg, after learning of their customer base, you contact their customers directly and undercut the seller.

    I can't imagine there will be anything in it to stop you from starting or running your own business.

    https://www.businesstrade.com.au/what-are-non-disclosure-agr…

    • tickettomars on 18/10/2020 - 22:28

      thank you very much chiplover
      I have engaged a lawyer just for a peace of mind.
      And I agree with you. :)

  • Slippery Fish on 18/10/2020 - 22:31

    I'd reckon any details 2 year old wouldn't even be curr e nd in that space.

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