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Are you losing trade secrets because of your NDA?

As an intellectual-property and business attorney, I frequently help clients navigate the beginning of various discussions where key aspects of the business or technology must be disclosed with potential partners. I continue to be shocked by the number of proposed non-disclosure agreements ("NDAs") I review that still have language that trigger trade-secret loss.

You read that right. NDAs that trigger trade-secret loss.

Now, I have always been sensitive to this issue. And for NDAs that I draft for clients, I have always made sure to include language that preserves confidentiality obligations for trade secrets beyond the life of the NDA. But to the extent it was ambiguous that survivability language was needed in NDAs to preserve trade secrets, any doubt was dispelled by the Ninth Circuit in BladeRoom Group Limited v. Emerson Electric Co.

In BladeRoom, BladeRoom and Emerson explored the possibility of Emerson buying BladeRoom in August 2011. They did that under an NDA drafted by BladeRoom that said: "this agreement shall terminate on the date 2 years from the date hereof."

Fastforward a year, the discussions fell apart and both Emerson and BladeRoom ended up competing to build a data center for Facebook in Sweden. Emerson won the contract. BladeRoom sued, including based on breach of contract with respect to the NDA.

Emerson argued that because NDA terminated after 2 years, that it could not be liable for any use of BladeRoom confidential information, including trade secrets, after August 2013. BladeRoom filed a motion in limine to prevent Emerson from making this argument, which the district court granted. But the Ninth Circuit, interpreting the plain meaning of the NDA found that Emerson was right. It could not have any confidentiality obligations after August 2013, even for BladeRoom trade secrets because the NDA "terminated" after two years. There was no language indicating that confidentiality obligations continued for trade secrets post termination.

The lesson: Make sure your NDA termination provisions do not accidentally cancel your trade secrets. Update your forms and make sure to have an attorney that has demonstrated a sensitivity to these issues review NDAs that are sent to you for signature. Don't sign away your trade secrets because you were in a rush to have a conversation, no matter how exciting the business opportunity.



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