The Anatomy of a Non-Disclosure Agreement

Last week we posted a video about Non-Disclosure Agreements (NDA/s) and how a common mistake in their drafting could put your Company’s trade secrets at risk. Now, we’re following up with this blog post to point out the key provisions to keep an eye out for.

Remember: Trade Secrets are protected by statute and can (must) be kept secret forever. Make sure an NDA that you are asked to sign does not accidentally tie disclosure of your trade secrets to a shorter confidentiality period. In other words, trade secrets are special – make sure the NDA treats them accordingly.

Below, is a sample “one way” NDA that requires the party receiving your Confidential Information (“Receiving Party“) to keep it secret during the term of the NDA, and for an additional 2 years after its termination (“Confidentiality Period“). For Confidential Information that qualifies as a “trade secret” under Wis. Stat. Sec. 134.90, the Confidentiality Period does not apply – and the Receiving Party must keep it secret forever. The Agreement includes “trade secrets” in the aggregate definition of “Confidential Information,” but provides an exception to the Confidentiality Period in Section 4.

See below for an explanation of the relevant sections:

CONFIDENTIALITY AGREEMENT

THIS CONFIDENTIALITY AGREEMENT (“Agreement”) is entered into this ___day of_______________, 20___ (“Effective Date”), between Any Company, Inc., a Delaware corporation (“AnyCo”) and ___________________________________ (“Recipient”).

1. Definitions.

A) “Confidential Information” shall mean any idea, concept, design, prototype, product configuration, invention, patent or patentable subject matter, method, process, technique, procedure, system, plan, model, program, software or code, data, specification, drawings, diagram, flow chart, documentation, know-how, trade secret, work of authorship, content, copyright or copyrightable subject matter, derivative work, trademark or trade name, improvement, modification, technical or business information or plan, research and analysis, customer lists and information; product and services pricing; vendor pricing; financial information; and other information relating to business operations that by its nature would be regarded as sensitive, proprietary information and/or that otherwise qualifies for protection under any law providing or creating intellectual property rights, including but not limited to the Wisconsin Uniform Trade Secrets Act, provided by AnyCo to Recipient.   

The following information is not regarded as confidential and is excluded from the definition of Confidential Information:

  1. Information which (a) was in the public domain at the time of the disclosure to the Recipient or (b) which, after such disclosure, became part of the public domain through no action by, or fault of, the Recipient;
  2. Information which can be shown by the Recipient through tangible evidence to have been known to the Recipient at the time of disclosure and not acquired directly or indirectly as a consequence of the Recipient’s relationship with AnyCo;
  3. Information which the Recipient can show was received by the Recipient from a third party having the legal right to transmit it; and
  4. Is developed by the Recipient or its affiliates independent of and without any use of, reference to, or reliance upon the Confidential Information.

NOTE: Look at the definition of “Confidential Information” above. As you can see, it’s a “kitchen sink” definition that includes a universe of possible information that could be shared under the terms of the NDA. Additionally, it includes important carve outs for information that is NOT considered confidential (like public information) which are important to have for enforcement purposes. Finally, “trade secrets” are included in the definition of “Confidential Information” – so we need to be careful that the secrecy timeline for “trade secrets” is NOT tied to the timeline for other “general” Confidential Information.

In some NDA’s – “trade secrets” will be excluded from the definition of “Confidential Information” to avoid a possible mixup.

2. Use of Confidential Information.

A) Recipient agrees: (i) It will not disclose or use any of the Confidential Information, except to: ______________________________________ (the “Permitted Purposes”); and (ii) It will take reasonable precaution against the unauthorized disclosure or use of any of the Confidential Information.  Such precautions shall include, but not be limited to: (a) Using the same precaution to protect the Confidential Information as the Recipient takes to protect its own confidential information; (b) Not publishing, disseminating or revealing in any manner the Confidential Information or any experience regarding any of the Confidential Information to any third party and, except as necessary for the Permitted Purposes, not using the Confidential Information for any purpose, including, without limitation, in connection with any transaction with any other customer, actual or potential, of the Recipient.

B) The Recipient may disclose Confidential Information pursuant to a requirement of law, provided that the Recipient: (i) Gives AnyCo prompt written notice of such fact so that it may obtain a protective order or other appropriate remedy concerning any such disclosure; (ii) Cooperates fully with AnyCo in connection with its efforts to obtain any such order or other remedy; and (iii) Discloses, where disclosure is necessary, only the Confidential Information legally required to be disclosed, and uses its best efforts to have confidential treatment accorded to the disclosed Confidential Information.  The Confidential Information that is disclosed pursuant to this paragraph shall remain confidential for all other purposes.

NOTE: This section details WHAT Confidential Information can be used for during the term of the NDA (i.e. the “Permitted Purpose”). The Permitted Purpose may be broad, or it may be very nuanced – depending on the specific reasons the NDA is needed in the first place.

3. Ownership. 

A) All Confidential Information, in whatever form or format and including, without limitation, all summaries, copies and excerpts of the Confidential Information, which comes into the Recipient’s custody, possession or knowledge in the course of or in connection with the discussions and any resulting services shall be solely the property of AnyCo or its clients. Neither this Agreement nor any disclosure of the Confidential Information to Recipient shall be deemed to transfer to, or vest in, the Recipient any license, interest or right in any copyrights, patents, trade secrets, know-how or other property of the disclosing party.

NOTE: This section ensures that any Confidential Information disclosed by either party, remains the individual property of the party disclosing it.

4. Termination. 

A) For a period of two (2) years following the last provision of services to AnyCo by the Recipient, Recipient agrees not to take, disclose to others, or use any Confidential Information.  For any Confidential Information that constitutes a trade secret, there is a permanent restriction against use or disclosure of trade secrets as long as they remain trade secrets of AnyCo as “trade secret” is defined by the Wisconsin Uniform Trade Secrets Act.  AnyCo may terminate the Recipient’s access to its Confidential Information at any time and for any reason.  Upon such termination, the Recipient shall immediately: (i) Return or destroy all of the Confidential Information that Recipient may have in its possession, whether in written, graphic, machine-readable or other physical form, and all copies of the same; and (ii) Provide to AnyCo all notes analyses, compilations, studies and other documents and records prepared by the Recipient which contain, reflect, refer to or otherwise are generated from the Confidential Information, and all copies of the same. 

NOTE: This is the section that matters! Remember, in this NDA “trade secrets” are included in the aggregate “kitchen sink” definition of “Confidential Information” so we need to be sure that “trade secrets” (which can be secret forever) are not accidentally tied to a shorter confidentiality term.

In this version, we’re good to go. As you can see general “Confidential Information” has to remain a secret during the term of the NDA and for 2 years after its termination. However, for Confidential Information that is also a “trade secret,” that 2 year limitation does not apply – trade secrets must always be kept a secret.

5. Scope.

A) This Agreement and the Recipient’s obligations under this Agreement shall be deemed to cover any of Confidential Information, whether provided previously or in the future to the Recipient in connection with the Permitted Purpose and any resulting services.  The Recipient’s obligations to AnyCo under this Agreement are in addition to any other duty or obligation that the Recipient may have to AnyCo and shall survive any termination of this Agreement.

NOTE: This section does not concern the main topic of this post. But, this section ensures that the NDA applies to the entire scope of the parties discussions about the Permitted Purpose, and specifically states that the confidentiality obligations are in addition to (not instead of) any other obligations (in other agreements) between the parties.

6. Injunctive Relief. 

A) Recipient acknowledges that damages for breach of the covenants in this Agreement are an inadequate remedy and that in the event of such breach, AnyCo is entitled to injunctive or other equitable relief against it, in addition to any remedies of law, including the recovery of damages and attorneys’ fees.

NOTE: Almost all agreements dealing with disclosure of Confidential Information will include a section like this one. This section states that in addition to money damages, AnyCo can seek an injunction (order from a judge) to enjoin (stop) the Recipient from disclosing Confidential Information.

7. Severability. 

A) The invalidity or unenforceability of any provision of this Agreement shall not affect the other provisions, and any invalid or unenforceable provision shall be deemed to be amended to the minimum extent necessary to make it valid and enforceable.

NOTE: Almost all contracts of any type will have a section like this one. This section states that if one section of this NDA is (accidentally) unenforceable, that fact won’t invalidate the rest of the otherwise acceptable NDA.

8. Counterparts. 

A) This Agreement may be executed in counterparts, all of which taken together shall constitute one agreement binding on all the parties notwithstanding that all the parties are not signatories to the original or the same counterpart.  The exchange of copies of this Agreement and of signature pages by electronic means shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the Parties transmitted and/or executed by electronic means shall be deemed to be their original signatures for all purposes.

NOTE: This section is pretty self explanatory. It allows everyone to sign their own copy of the agreement, rather than needing everyone’s signature on one page.

9. Governing Law; Venue. 

A) This Agreement shall be governed by and interpreted according to the internal laws (without reference to conflict of laws principles) of the State of Wisconsin.  The parties agree that any dispute between them shall be litigated in the courts located in Dane County.

IN WITNESS WHEREOF, the parties have executed this Confidentiality Agreement as of the Effective Date.

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