THE REST ABOUT NON-DISCLOSURE AGREEMENTS
In FLAM NOTES 1, I stated that a Non-Disclosure Agreement (NDA), commonly called a confidentiality agreement, is the base layer of protection for your company’s confidential, non-public and proprietary information. An NDA is strong evidence that a discloser has reasonably acted to protect its confidential information. An NDA should at least include: (1) a definition of “confidential information”; (2) exceptions to that definition; (3) the confidentiality protection period; (4) who can view the confidential information; and (5) how the discloser can protect its confidential information if the NDA is violated by the recipient. I covered (1) and (2) in the first installment. I will now cover (3), (4) and (5).
Discloser should protect its trade secrets for the longest time period permitted under the governing law of the NDA. Trade secrets have economic value (whether actual or potential) by not being generally known and readily ascertainable by proper means. This definition derives from the Uniform Trade Secrets Act which has been enacted in most states. Trade secrets may be a formula, program, device, method, technique or process. They are the most valued type of confidential information to protect, so reasonable efforts should be maintained, at the minimum, to maintain their secrecy. Trade secrets provide a competitive advantage and exemplify the valued role of innovation in commerce. All other confidential information should be protected until it is foreseeably no longer novel or valuable, which can be as short as a few years or much longer. The confidentiality protection period should start from the termination or expiration date of the NDA instead of when the confidential information was first disclosed to recipient.
Discloser should limit the recipient’s viewers to only those within the recipient’s business operation (and its professional consultants) who have a “need to know” to carry out the limited purpose of the NDA. Recipient should agree to at least protect the discloser’s confidential information in a commercially reasonable manner in that industry. Simply stating that recipient will protect discloser’s confidential information like its own may be inadequate. Some disclosers may even insist on having the recipient list all who will view the discloser’s confidential information and require each person to sign a separate NDA.
Due to the economic value of confidential information and the detrimental effect that could result if such information is improperly disclosed or used by actual or threatened misappropriation, the NDA should provide powerful remedies if the recipient violates the NDA. These remedies typically include: (a) the right to obtain injunctive relief from a court to stop the unauthorized disclosure or use; (b) monetary damages for any consequential or incidental loss; (c) reasonable attorneys’ fees and costs; and (d) any other relief that the court deems appropriate under the circumstances based on the severity of the breach and the actions of the recipient or unauthorized user, which may include awarding punitive damages.
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