Can Confidentiality Agreements Be Indefinite

These agreements are used between start-ups, individuals, small and medium-sized enterprises (SMEs) and large companies that are trying to establish a new business relationship or partnership between them and can be used to preserve the confidentiality of valuable disclosures and prevent the misuse of this information. Another point to consider is when the privacy period should begin. Confidentiality agreements, non-disclosure agreements, non-disclosure agreements – whatever the name, these ubiquitous and seemingly simple agreements are so common in today`s business environment that many business people regularly sign them without much, if any, real review or consideration. A common justification for the superficial treatment of these legal agreements is that they are often the precursors to a broader subsequent agreement, which is likely to be subject to more scrutiny. Moreover, as history often says, the agreement lasts only 1 year (or 2 or 3). We have seen them all – confidentiality agreements with provisions that say something like, “The confidentiality obligations set forth in this document apply for one (1) year after the disclosure of the confidential information.” At first glance, such provisions seem useful because they create a limited expiry of a company`s legal obligations under the agreement. This can be fine in many cases. But when trade secret information is leaked under the agreement, these provisions are traps for the unwary. Here`s the problem: valuable information can be protected forever as a trade secret – as long as the owner continues to make reasonable efforts to maintain the confidentiality of the information. If a company shares information with another company using a confidentiality agreement that has a fixed term of confidentiality obligations – for example 1 year – then it is unlikely that the information can be protected as a trade secret after that date.

Since the recipient of this information is not required to keep the information confidential after the specified time limit has expired, it is unlikely that the courts will allow a company to claim that the information is a trade secret – even if the company sues an independent party for misappropriation of that information. The obvious answer to this situation seems to be the use of confidentiality agreements with no specified duration where there is a possibility of disclosure of trade secret information. But wait, it`s not that simple. Some States consider confidentiality agreements with no specified duration to constitute unreasonable trade restrictions if they relate to confidential information but do not reach the level of trade secret under applicable law. If a perpetual confidentiality agreement is used in these states and confidential and confidential trade secret information is disclosed, a company runs the risk that a court will find the agreement unenforceable, which would erase trade secret protection for all disclosed information. In these states, a common practice is to include two protection conditions in confidentiality agreements – a term of 1 or 2 years for confidential information that does not apply in the trade secret, and a longer term for trade secret information, as long as such information remains a trade secret under applicable law. If the NDA contains a time limit for its obligation of confidentiality, the expiry of that period may jeopardize the trade secrets covered by the NDA. Two jurisdictions have concluded that the expiry of the obligation of confidentiality shows that the trade secret holder is no longer taking appropriate measures to maintain the secrecy of the information.

See Silicon Image, Inc. v. Analogk Semiconductor, Inc., No. 07-cv-00635 JCS, 2008 WL 166950, at *16-17 (N.D. Cal. January 17, 2008); D.B. Riley, Inc.c. AB Engineering Corp., 977 F.Supp 84, 91 (D. Mass 1997).

Some courts have argued that the NDA replaces any implied obligation of secrecy that would otherwise have existed. See e.B. Marketel Intern., Inc.c., Inc., 36 F. App`x 423, 425 (Fed. Cir. 2002). Thus, in this case, when the NDA expired, there was no implied obligation of confidentiality. Disclosing parties generally try to ensure that recipients are required to enter into downstream confidentiality agreements with third parties who are authorized to disclose confidential information at a later date. In these cases, the recipient or disclosing party may prefer that these third parties enter into separate confidentiality agreements directly with the disclosing party. Templates for non-disclosure agreements and model agreements are available on a number of legal websites. In mutual confidentiality agreements, each party is treated both as a discloser of its confidential information and as the recipient of the other party`s confidential information (for example.

B when two companies enter into a strategic marketing alliance). In these situations, both parties are subject to identical confidentiality obligations and restrictions on access to and use of information disclosed by the other party. .