Establishing and Maintaining Ethical Wall Procedures for Confidential Information

Explanation

This clause requires the Receiving Party to implement adequate procedures to prevent unauthorized disclosure of Confidential Information, restrict access to only those who need it for permitted purposes under the agreement, and ensure those individuals are bound by obligations of confidentiality at least as strict as in the agreement. Key points:

1) Ethical wall: The Receiving Party must establish proper procedures, controls and safeguards to avoid unintentional or inappropriate disclosure of Confidential Information - referred to as an "ethical wall". This forms a figurative barrier isolating the information and restricting its spread.

2) Restricted access: Access to the Confidential Information is limited to specific individuals who need to know it in order to carry out purposes allowed under the agreement. Not all employees, advisors or third parties are entitled to access.

3) Individual obligations: Those permitted access behind the ethical wall are personally obliged to keep the information confidential based on terms at least as strict as those imposed on the Receiving Party under the agreement. They do not get access without personally undertaking obligations.

4) Responsibility: Although certain individuals obtain access and owe personal duties, the Receiving Party ultimately remains responsible for any breach of confidentiality obligations under the agreement. Their access is allowed under the Receiving Party's control and discretion.

5) Permitted purposes: Use of the Confidential Information is limited to the specific purposes authorized under the terms of the agreement. Access for other purposes is not allowed. Only necessary access is granted.

The objectives and benefits of including an ethical wall clause are:

1) Ensuring sufficient protections and controls are put in place to safeguard sensitive information disclosed during a relationship or transaction. This facilitates disclosure by addressing confidentiality concerns.

2) Limiting "need to know" access to information only for clearly permitted purposes under the agreement. This prevents dissemination for other reasons and limits potential for unauthorized use.

3) Extending personal responsibility for confidentiality to specific individuals allowed behind the wall. This strengthens protection by attaching obligations directly to those handling the information.

4) Retaining ultimate responsibility with the Receiving Party. Despite personal obligations, accountability for any breach traces back to the entity controlling access. This prevents avoidance of responsibility through blaming individuals.

5) Clarifying expectations around implementing controls to avoid both intentional unauthorized disclosures as well as inadvertent spread of information through carelessness or improper handling. Adequate procedures must be put in place.

In summary, an ethical wall clause aims to provide safeguards facilitating disclosure of sensitive information to certain entities during commercial relationships by requiring strict control and imposing obligations at multiple levels. It limits access to necessary purposes, extends duties to individuals behind the wall but retains responsibility with the controlling party. The aim is affirming real and approved information exchange versus unrestrained spread in a way that addresses confidentiality risks and holds the right parties properly accountable.

History of the clause (for the geeks)

Early commercial dealings relied on good faith and informal controls given limited means to monitor information use. As trade expanded globally, risks increased but approaches remained ad hoc. Confidentiality clauses developed referencing duty of confidence at common law but provided limited guidance. Accountability was uncertain where information spread between entities.

By the 19th century, "Chinese wall" concepts emerged as firewalls isolating confidential information but approaches were discretionary. In the U.S., strict privity confined duties, and legislation lagged business needs. In the UK, obligations beyond initial recipients remained unclear. As corporates grew more complex, informal barriers proved inadequate, but prescriptive rules risked inflexibility.

In the early 20th century, "ethical wall" replaced "Chinese wall", recognizing procedures were discretionary rather than physically isolating information. However, confidentiality clauses still commonly only imposed blanket duties, rarely specifying implementation methods. Where walls were referenced, responsibility and individual obligations were often not addressed. As information became more commercially sensitive and valuable, this raised risks, especially given limits of monitoring internal use.

By the mid-20th century, some walls emerged referencing notice, training and consent, but procedures remained discretionary and varied. Legislative interventions increased recognition of the risks from careless handling and the need for accountability but depended on voluntary adoption. Even into the 1990s, confidential information usage, security and privacy controls were not universally or uniformly addressed in contracts or business practice. Many organizations failed to prioritize information risk management absent crises.

Today, ethical wall concepts are widely accepted good practice, and clauses more commonly reference implementation, access limitation and individual responsibility. Data protection laws, privacy concerns and cyber threats also drive tighter controls. However, walls still depend on voluntary adoption, and confidentiality clauses vary in specificity and enforceability. No standard procedures exist, and accountability models differ across borders. Tensions remain around defining adequacy, monitoring internal restrictions and achieving transparency without compromising sensitive information or commercial interests.

In summary, the trend is toward stricter duty specification in contracts and higher standards of information controls and governance to facilitate business across borders. But practices continue evolving, formal laws remain discretionary, and no universal formulas exist. Adequacy depends heavily on context - entities, geographies, industries and relationships.

While recognition grows that robust procedures underpin trust in dealings, and accountability brings commercial benefits, rigid rules risk limiting legitimate exchange or access and obsolescence as new challenges and technologies emerge. Overall, ethical walls reflect efforts to achieve open yet prudent business through policy and practice but require ongoing adaption to match purposes and scale to needs. They govern the informal and discretionary as much as the strictly defined.