Drafting Nondisclosure Agreements With Time Limitations: Reducing Risks to Trade Secrets

Description

NDAs often include clauses that set time limits. The language is sometimes as simple as "The obligations owed under this agreement expire five years after termination." Parties claim that the reason for these limits are either administrative convenience, the finality of obligations, or most often that the information is expected to "go stale" after a period of time.

Because a trade secret derives its protection from proof that the owner has exercised reasonable efforts to safeguard its secrecy, routinely signing time-bound NDAs that allow the trade secrets recipient to freely use and disclose such trade secrets after the passage of time can be fatal to their protectability. Protecting trade secrets from discovery due to NDAs that include time limitations is critical.

Trade secret owners entering into NDAs with customers or joint venture partners may be faced with pressure to include time limits in the agreement to minimize any perceived burden imposed on the receiving party. It is a rare event that a trade secret owner is certain that the trade secret will no longer have value at the expiration of the NDA. In most cases though, trade secret owners should refuse to include any set time limitations for the receiving party's obligations to maintain the information in confidence.

Because of the general policy disfavoring restrictive covenants on departing employees to promote competition, the mobility of workers, and an employee's right to use skill and general knowledge in future employment, the treatment of time limits in NDAs with departing employees is particularly complex. Although the NDA may need to include time limits of some type, time limits should not be placed on restrictions prohibiting the misappropriation of trade secrets. NDAs for employees should include a bifurcated confidentiality provision that provides a time limit on the employee's responsibility to maintain information in confidence only for information that does not rise to the level of a trade secret. In such a bifurcated provision, the employee would have a continuing obligation to respect the company's trade secret.

Listen as our expert panel discusses what type of time limitations can (and should) be placed on an NDA, how agreements with customers or partners may be influenced by those limitations, and how to limit trade secret liability in employment agreements.