In business, we’ve all seen the traditional nondisclosure agreement (also known, more simply, as the “NDA”) between two parties wishing to discuss a potential business transaction. While NDAs are good tools to protect a party’s confidential information during such discussions, businesses must take care to ensure that an NDA does not jeopardize the strong protections traditionally available to them under state laws.
State trade secret laws can provide substantial protection to certain confidential information, including trade secrets. These protections generally apply to information or materials that (1) have independent economic value; and (2) are kept “secret” by the owner. Importantly for purposes of meeting the secrecy requirement, most state laws provide that, so long as the owner takes measures to protect the secrecy of the information or materials that are reasonable under the circumstances, the requirement will be deemed met. Entering into an NDA sure sounds like at least one reasonable measure to protect the secrecy of a business’ confidential information, including its trade secrets. But business must beware: certain provisions of NDAs, if not properly addressed, could endanger state law protections regarding trade secrets. These provisions generally fall into one of two categories:
1. The term of the NDA. In many cases, the term of the NDA is limited to a one, two or three year period. The issue with NDAs of limited duration stems from the fact that, once expired, the recipient of trade secrets under the NDA might have no duty to keep such information or materials confidential. Under these circumstances, once the NDA has expired, some courts may find that the owner of a trade secret is no longer taking reasonable measures to keep its trade secret a “secret.” As a result, the relevant information or materials may lose trade secret protections under state law.
On its face, the obvious solution to this problem
Continue Reading Keeping Your Trade Secrets Safe: When NDAs Can Backfire