CSO

Trade secrets are confidential business information that have value because they are not generally known and are the subject of efforts by the business to keep the information confidential.  The most well known example of a trade secret is the formula for Coke.  Every company, however, has trade secrets (e.g., customer lists, source code for software, methods of creating products, etc.).  Every state has enacted laws to protect trade secrets.  There are also federal laws that provide additional protection for trade secrets by way of severe civil and criminal penalties for theft or other misappropriation of trade secrets.

Protecting trade secrets has never been more difficult.  I have previously written about the increasingly mobile workforce (i.e., employees transporting trade secrets on laptops, cell phones, and removable media) and staff turnover presenting significant risk to a business’ trade secrets.  Another potential risk is the sharing of trade secrets with business partners.  In most cases, that sharing is done under a non-disclosure agreement (NDA).  NDAs are brief contracts used to ensure each party’s confidential information is protected during certain business discussions.  Generally, NDAs are used to protect information during preliminary business discussions prior to the parties entering into a full-blown agreement for the engagement.

The NDA, however, presents a significant risk of its own.  Recent case law has made clear that, at least in some jurisdictions, if trade secrets are disclosed under an NDA and that NDA has a defined term, as most do, after expiration of the term the trade secrets will no longer be protected.  Most NDAs have a term of three to five years.  After that time, neither party has any continuing confidentiality obligations.  Recent court decisions now make clear that if trade secrets were disclosed during the course of the NDA, after its expiration the parties may no longer have any further obligation to protect those trade secrets.  This means that after the term of the NDA, the trade secrets can no longer be protected in some jurisdictions. 

This risk, however, can be mitigated in the language of the NDA.  Specifically, the NDA should make clear that regardless of its term, any trade secrets disclosed by a party must continue to be held in confidence for as long as they are protected under applicable trade secret law.  This will ensure trade secret protection isn’t forfeited as soon as the NDA expires.