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© 2009-2019 Dana H. Shultz, Attorney at Law

Limitation of Liability and Confidentiality Provisions in Tech Contracts

Logo for Quora, where Dana Shultz abswered a question about limitation of liability

This post is based on a question about limitation of liability that I answered on Quora.

Q. Why do technology contracts often carve breach of confidentiality out of the limitation of liability?

A. I’m going to start by broadening the discussion, a bit.

First, the carve-outs typically modify both limitation of liability and limitation of damages. So, whereas an agreement might include provisions both limiting? the total (dollar) amount of liability and liability for consequential damages, such limitations will not apply to the carved-out subject matter.

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Stupid Provision Pops Up in NDAs

Dunce cap on a stool in the corner of a room

Twice during the past week clients have asked me to review (someone else’s) nondisclosure agreements (NDAs) that contain a stupid provision of a type that I had not seen for years. That provision is as follows:

RECIPIENT shall not be liable for inadvertent disclosure or use of CONFIDENTIAL INFORMATION nor for unauthorized disclosure or use by persons who are or who have been in its employ or with whom it has contracted provided that it uses the same degree of care in safeguarding such CONFIDENTIAL INFORMATION as it uses for its own CONFIDENTIAL INFORMATION of like importance.

I consider the provision stupid for the following reasons: (more…)

Handbook Defeats Employee Claim of Attorney-Client Confidentiality

Cover of an employee handbook

In “Inspection of Employee Text Messages ? Be Careful“, I described provisions concerning company-provided technology that every employer should include in its employee handbook. A recent California Court of Appeal case, Holmes v. Petrovich Development Co., shows that such provisions are strong enough to defeat a claim of attorney-client confidentiality!

Gina Holmes brought suit against her former employer, alleging sexual harassment, wrongful termination and other causes of action. The employer presented as evidence e-mails between Holmes and her attorney – e-mails sent from her employer’s computer – that supported the employer’s case.

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Why Your Lawyer Need Not Sign an NDA

Cover page from California Business and Professions Code

Once in a while, when I send an engagement letter, the prospective client wants to add confidentiality provisions to protect its trade secrets. The following is the explanation that I provide as to why such provisions – let alone a separate nondisclosure agreement (NDA) – are not required in an attorney’s engagement letter.

California Business and Professions Code Section 6068 specifies the fundamental obligations of an attorney. Subsection (e)(1) states that each attorney must “maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client.” (Emphasis added.) Attorneys in other states have similar obligations.

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Foreign Suppliers Beware: Five Contract “Gotchas” when Adapting Your Agreements

A couple of months ago, I posted International Business and Agreements: Learning about Legal Culture. This is a follow-up that discusses certain common problems when foreign suppliers bring their standard-form agreements to the U.S.

Filling in Gaps

During the past several years, I have helped quite a few foreign technology suppliers adapt their standard-form agreements for use in the U.S. The agreements that they use back home (translated to English, as required) are quaint by U.S. standards. There is a lot of white space, and fonts tend to be large. Furthermore, while the agreements specify business terms in detail, they address many legal provisions in a cursory fashion or not at all. (more…)

The Top Ten Legal Mistakes of Startup and Early-stage Companies

I am pleased to make the article “The Top Ten Legal Mistakes of Startup and Early-stage Companies” available as a Free Download on the Downloads page.

Here are the ten mistakes that are discussed:

  1. Failing to comply with corporate formalities
  2. Pretending that employees are independent contractors
  3. Neglecting to provide and update an employee handbook
  4. Failing to establish or adhere to discipline or termination procedures
  5. Failing to ensure that the company owns its intellectual property
  6. Believing that “open source” means “no restrictions”
  7. Thinking that all NDAs have the same terms
  8. Believing that websites can unilaterally change their terms of use
  9. Using another company’s standard-form agreement
  10. Giving “family jewels” to an overseas supplier

Related post: Top Ten Intellectual Property Mistakes of Startup Entrepreneurs

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Need a Sample Confidentiality Agreement / NDA?

I am pleased to make available as Free Downloads on the Downloads page the sample Mutual and Unilateral Nondisclosure Agreements that I originally made available via Legal OnRamp.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.