Thursday, September 18, 2014

NDA: Term and Trade Secrets

            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