“Innovation is seeing what everybody has seen and thinking what nobody has thought.”
- Dr. Albert Szent-Györgyi
Henry Ford didn’t invent the automobile. That credit goes to Karl Benz and Gottleib Daimler, two men who lived in different cities, had never previously met, and yet independently received patents for the automobile in 1886. The companies they founded—Benz & Cie. In Mannheim, Germany, and Daimler Motoren Gesellschaft at Canstatt, Germany—eventually merged in 1926 to become Daimler-Benz, which produces Mercedes-Benz automobiles to this day.
Henry Ford wasn’t even the first American automobile manufacturer. Brothers Frank and Charles Duryea, who founded the Duryea Motor Wagon Company in 1893, hold that distinction. But Henry Ford and his Ford Motor Company became legends in automotive history for one innovation that Henry Ford applied to automobile manufacturing. Ford’s innovation? The assembly line. Within 5 years of introducing the assembly line to automobile manufacturing, half of all cars in the United States were Model Ts.
But the Duryea Motor Wagon Company, first off the starting block in America, wasn’t there to witness Ford’s milestone, having gone out of business the year before. What led to Duryea’s demise? Two factors stand out: Ford’s manufacturing innovation, and Duryea’s inability to adequately capitalize.
Innovation is the lifeblood of industry. Whether the innovation is a new or better product, or a new or better process, innovation can give a business the edge in competition for customers and investors, and ultimately can determine the profitability of a product or service. This means there’s an enormous amount of economic value riding on successful innovation, and therefore. a lot of incentive for a company to both invest in research and development, and to keep its R&D knowledge confidential. It also means there’s a lot of incentive for competing companies to attempt to discover what their competitors are up to.
Often, the confidential and proprietary information held by a company is subject to legal protections for trade secrets. But one of the requirements for protecting a trade secret is that the confidential and proprietary information must not be known through publicly available sources. Thus, protecting a trade secret necessarily means that a company must take steps to protect the trade secret as confidential and proprietary information.
But there’s a tension between protecting confidential and proprietary information, and functioning effectively as a business. For example, how can a company safely share its confidential information with its own employees, if it fears that its confidential information may be compromised by a current or former employee?
Or suppose a business wants to explore a collaborative project with another company. The project may be potentially beneficial to both companies, but evaluating the feasibility of the project necessarily entails the sharing of otherwise confidential and proprietary information between the companies. How can either company share information with a potential competitor without compromising the protection of its confidential and proprietary information?
This is where Non-Disclosure Agreements come in. A Non-Disclosure Agreement (or “NDA”) is a contract in which one party (the disclosing party) agrees to share confidential information with another party (the receiving party), in exchange for the receiving party’s agreement that it will keep the disclosed information confidential.
Generally, NDAs are legally-binding and enforceable contracts, and an increasingly necessary and ubiquitous part of doing business, particularly so in Silicon Valley, where intellectual property (or “IP”) may be a company’s most valuable asset.
In an environment where protection of information and effective collaboration must often go hand in hand, companies typically require NDAs to be signed by anybody who will have access to the company’s trade secrets. These NDAs fall into two main categories: NDAs between a company and the employees of the company, and NDAs between two companies in furtherance of collaborative efforts between the companies.
Breaking it down even further, NDAs between companies can be either mutual NDAs, where both companies are sharing information, or unilateral NDAs, where only one of the companies is disclosing its confidential and proprietary information to the other company.
However, regardless of the category and type of NDA, because an NDA is a type of contract between the company and the receiving party, violating the NDA is a breach of contract, and may additionally expose the breaching party to liability for theft of trade secrets. And it doesn’t necessarily end there; in addition to civil liability, theft of trade secrets may result in criminal charges for felony violations of state and federal law.
However, while an NDA provides powerful protection for a company’s Intellectual Property assets, and the courts will uphold a carefully drafted NDA, a carelessly-drafted NDA may provide less protection than the disclosing company believes. Included among the reasons an NDA may be defeated are the following situations:
An NDA that is overly-broad in what information it purports to protect; or
An NDA that purports to protect information that is publicly-available knowledge; or
Where the NDA is an overly-restrictive covenant that effectively prohibits an employee from working in that industry after leaving the company.
For these reasons, it is vitally important for a company to carefully craft an NDA that protects the company’s proprietary and confidential information, while avoiding the pitfalls that would render the NDA unenforceable.
Additionally, while Non-Disclosure Agreements are generally legally-binding contracts and can be enforced in court, under California law certain provisions of Non Disclosure Agreements are void and unenforceable as a matter of law and against public policy. These unenforceable provisions include confidentiality provisions in settlement agreements involving workplace discrimination, harassment, or retaliation. While these types of NDAs were once common in workplace misconduct settlement agreements, they are no longer a legally valid means of shielding a company from public exposure for workplace misconduct, and the courts will not uphold them.
Representing Businesses and Individuals in Non-Disclosure Agreement Disputes
Whatever the nature of the Non-Disclosure Agreement dispute, and whatever the size of the company, a consultation with a seasoned business litigation team is essential in understanding the issues involved in a Non-Disclosure Agreement dispute. When Nichani Law Firm is representing you in a business dispute, we will always work with you to develop the right strategy for achieving your objectives. If litigation is the best way forward, we will bring your case to trial with zealous trial advocacy on your behalf. But litigation is only one of the tools available to us. If your legal issues can be resolved outside of the courtroom, without the time and expense of a trial, we will explain your available options for achieving the results you are seeking. But regardless of whether we are litigating your case at trial, or resolving your case outside of the courtroom, when Nichani Law Firm is representing you, we will always provide powerful advocacy to meet your objectives.
NICHANI LAW FIRM
Nichani Law Firm is a boutique Silicon Valley business and commercial litigation law firm, providing legal representation with a commitment to exceptional service, high-caliber solutions, and a deep focus on Business and Commercial Litigation, Bankruptcy and Creditor Rights, and Alternative Dispute Resolution. In every dispute, whether large or small, simple or complex, we will provide representation custom-tailored to meet your objectives. As your representative, we will zealously advocate your position, whether in an Alternative Dispute Resolution process, or at trial. Nichani Law Firm has successfully represented a variety of businesses throughout Silicon Valley and the Greater San Francisco Bay Area. We also serve as local counsel in Silicon Valley and the Greater San Francisco Bay Area for out-of-state attorneys and out-of-area companies, whether based in another region of California, another state, or another country—with business interests in Silicon Valley and the Greater San Francisco Bay Area.
For a consultation, contact Nichani Law Firm.