Non-Circumvention: What Is It & It’s Importance

by | Mar 30, 2023 | Business, Contracts, Featured, Law

A non-circumvention clause is a legal provision that is commonly included in business contracts. It is designed to prevent one party from circumventing or going around the other party to make a deal or form a business relationship with a third party, without the knowledge or involvement of the first party.


The clause typically specifies that the parties involved in the contract will not directly or indirectly use or disclose confidential information obtained during the business relationship to gain an unfair advantage or benefit over the other party. This clause also restricts the parties from initiating any direct or indirect contact with each other’s affiliates, clients, or customers without the prior written consent of the other party.


Non-circumvention clauses are often included in contracts where one party is providing access to confidential or proprietary information, business contacts, or clients to another party. This can include contracts such as non-disclosure agreement, confidentiality agreements, joint venture agreements, and licensing agreements.


The purpose of a non-circumvention clause is to ensure that both parties involved in the contract are protected from any misuse or unauthorized disclosure of confidential information. It also helps to maintain the relationship and trust between the parties by ensuring that they are not undermined or taken advantage of by third parties.


The importance of having a non-circumvention clause during negotiations can be significant, as it can help protect the interests of both parties involved. Here are a few examples to illustrate the importance of this clause:


Protecting Confidential Information: During business negotiations, parties may share confidential information, such as trade secrets, financial data, or strategic plans. A non-circumvention clause can help protect this information by preventing the other party from using it to strike deals with third parties without permission. For instance, if Party A is negotiating with Party B to invest in a new technology, the non-circumvention clause would prevent Party B from using that information to approach another company, Party C, and make a deal to develop the technology without Party A’s involvement.


Maintaining Negotiating Power: Negotiations can be delicate, and each party wants to maintain their bargaining power throughout the process. A non-circumvention clause can help level the playing field by ensuring that neither party can bypass the other and negotiate deals independently. For instance, if Party A is negotiating with Party B to acquire a company, the non-circumvention clause would prevent Party B from approaching any of the target company’s employees or vendors without Party A’s involvement.


Ensuring Fair Compensation: Parties negotiating a deal may agree on a specific compensation structure or commission rates for their efforts. A non-circumvention clause can ensure that the parties involved in the negotiations receive fair compensation for their efforts, even if the deal ultimately falls through. For instance, if Party A is negotiating with Party B to sell a product, the non-circumvention clause would ensure that Party A receives compensation for any sales made to customers introduced by Party B, even if Party B decides not to complete the deal.


Competing Against the Other Party: A non-circumvention also protects 1 party taking advantage of the other party by acquiring supplier and vendor details during negotiations and contacting those suppliers and vendors directly to open a business in direct competition with the other party. This risks is managed through a combination of non-disclosure clauses and non-circumvention clauses.


Overall, including a non-circumvention clause in a contract during negotiations can help protect the interests of both parties involved in a business relationship. It can prevent the misuse of confidential information, ensure fair compensation, and maintain the bargaining power of each party.

Nik Erman Nik Roseli Commercial Lawyer

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