Definition of Confidential Information in Non-Disclosure Agreement

This Wisdom of the Crowd was compiled from the questions and responses posted on the Litigation forum* addresses the definition of confidential information in a Non-Disclosure Agreement.

 

 

 

Response #1: I'm just not convinced that as a practical matter anybody actually ever does what's theoretically required to protect verbal disclosures by putting a summary out in writing. It's effectively asking me to agree to an agreement I know I'm going to fail at. And once I'm thinking of my work with you in that fashion, my ability to build trust in you and work with you just dropped a notch or more.

 

Further, in every instance I've seen, there's absolutely no indication of how to resolve an inherent ambiguity in those clauses -- If the confidential info is part of an earlier written disclosure that was fully marked, etc., and then later is separately disclosed verbally but without a written follow-up memo, does that lift the obligation as to that information because the recipient can now claim the benefit of the unprotected verbal disclosure? Even if you can argue that it might go one way or another in court, I doubt anybody here can absolutely prove exactly how that all turns out, which creates risk and uncertainty that is not good for either party to the Non-Disclosure Agreement.

 

For what it's worth, my observations of most major companies (at least in technology fields where I spend most of my time) suggests that the 'writing requirement' is no longer the norm in their form Non-Disclosure Agreements. (Certainly not universal, but that's the trend.) I would admit that in most cases those guys are more interested in the widest breadth and scope of the protection, as typically they are mostly on the discloser side and not on the receiving side, which alone suggests that those companies should not have an 'in writing requirement' in their Non-Disclosure Agreements. Still, since I profess to seeing little practical value to those clauses even for the recipient (as the amount of work needed to catalog and store are recall those writings probably far exceeds the value of them), I'm inclined to not wanting them in any Non-Disclosure Agreement regardless of the weight of the disclosing/receiving side I'm on.

 

As for the argument that recipients can't possibly keep track of what was disclosed if it's not given in writing later, I can only suggest it is not a valid point -- Are any of you required to restate in writing everything you tell to your outside counsel lest you lose your right of confidentiality of your disclosures to your lawyer? Of course not. Yet those same lawyers seem to have little trouble understanding what is in and out of protection, since it's pretty simple -- Just presume it's all confidential! If you're not willing to view my business relationship with me in that same fashion, and if I have to worry about what you're mining out of what I tell you to take to your own business advantage down the road, I am not really sure I want to do business with you anyway.¹

 

Response #2: There is a gravitational opposition in designing a Non-Disclosure Agreement between trying to provide a very broad, protective, kitchen sink list of Confidential Information types, on the one hand, and providing the practical expedient of defining Confidential Information by marking it or describing it after the oral disclosure, on the other hand. The latter approach gives greater clarity as to what is covered and what isn't. The former approach provides a broad ambit of protection but lends itself to ambiguity as to protection, the kind of ambiguity that prolongs disputes.

 

The problem with the marking/memorializing approach is that once the meeting is over there is a real likelihood that (a) material which is confidential will be shared without the marking, or (b) no one will remember to send the memo of the materials which were discussed which need to be Confidential. Also business people may not be attuned to the need to mark some items which, on reflection, they later believe should be confidential items. Finally, the memo may be the cause of some dispute about whether something is confidential, practically before the business collaboration begins.

 

A middle ground seems to me that the parties agree to mark confidential items as Confidential but that failure to mark will not cause the material to be non-confidential but will enter into discussions about remedies. To some extent this resembles the marking schemes for copyrights and trademarks (although I would not wish to stretch the analogy).²

 

Response #3: In my view, this is all very industry-specific. We have entered into thousands of Non-Disclosure Agreements over the years and never litigated a single one, so all this debate about the definition of confidential information is really statistically insignificant to us/in our industry. Given that, I try to make the Non-Disclosure Agreement process as fast and easy as possible so that the business teams can move forward. That typically means taking a broad, "assume everything is confidential" approach and not requiring people to mark things in writing or reduce conversations to writing. I would be very curious to hear how frequently companies are litigating Non-Disclosure Agreements (and in what fields), because ultimately, that is what distinguishes a purely intellectual debate from a business-relevant one.³

 

Response #4: That would be very interesting to learn for all sorts of reasons. The amount of fuss put into Non-Disclosure Agreement seems way out of proportion to their ultimate utility. Do we only do them because we knee-jerk presume that failing to have a contract for confidentiality is automatically a sign of failure? And if it's really true that you can't presume any obligation absent a contract, is there really no value to asking yourself if the 'trust' between business parties is good enough for 99% of the confidential information we typically share with each other? Certainly there are situations where a full-blown Non-Disclosure Agreement is justified, but is it really the case that we can't even send a sales guy over to talk to the other party unless and until there's already a signed Non-Disclosure Agreement? When can lawyers let go of perfection and help our clients to determine when the effort (and potential harm to the relationship) is not providing enough benefit?⁴

 

Response #5: Regarding putting verbal disclosures into writing, when required by a Non-Disclosure Agreement, the Convolve v Seagate case from 2013 (Convolve, Inc. v. Compaq Comput. Corp., 527 Fed.Appx. 910 (Fed. Cir. 2013)) may provide some insight.

See II. A. 2. of the opinion to see the result of noncompliance with the terms of the NDA.

Here is a link to the decision at the Federal Circuit's website: http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/14-1732.Opinion.2-8-2016.1.PDF⁵

 

¹Response from: Anonymous (6/27/2016)

²Response from: Jeffrey Boak, Assistant General Counsel, PartyLite Inc. (6/23/2016)

³Response from: Emerson Moser, SVP, General Counsel and Corporate Secretary, General Cable Corporation (6/28/2016)

⁴Response from: Anonymous (6/28/2016)

⁵Response from: Anonymous (6/29/2016)