When
reviewing a non-disclosure agreement ("NDA"), one area that you
should pay attention to is the interplay between the term or duration of the
agreement and your trade secrets.
A
NDA's confidentiality provision imposes burdens on the party receiving
confidential information. Thus, a
party receiving confidential information will try to limit the term of the
agreement. A typical NDA term provision
looks like the following:
The terms and conditions of this
Agreement shall continue for a period of two (2) years from the date a party
last discloses any Confidential Information to the other pursuant to this
Agreement.
As the confidentiality provision is linked to the term of
the agreement, the confidentiality obligations expire after a limited term.
One
potential issue with having a limited term confidentiality provision in an NDA
occurs when a disclosing party shares a trade secret. A trade secret, generally, is some confidential business
information that provides a business with a competitive advantage. Trade secrets can remain valuable as
long as they remain a secret (e.g., formula for Coca-Cola). Thus, a party with a trade secret must
take reasonable precautions to restrict access to their trade secret. However, by agreeing to a limited term
confidentiality provision, a party puts the long-term value of their trade
secret at risk because they will not have taken reasonable precautions to
ensure their trade secrets remain secret.
If
you are reviewing a NDA and expect to disclose trade secrets, then you should demand
that the confidentiality provision as applied to disclosed trade secrets not
expire until the trade secrets are no longer a trade secret. If your demand is not met, then you
should evaluate what information you are willing to share with the knowledge
that the confidentiality obligation expires after a limited term.
- HP
