NON-DISCLOSURE
AGREEMENT DISPUTES

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:

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• 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.

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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.