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…)
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.
Dur-a-Flex v. Laticrete International illustrates the value of a well-drafted nondisclosure agreement (NDA) – not to mention one that includes an attorneys’ fee provision.
Dur-a-Flex developed a trade-secret process for producing colored sand. Laticrete was a long-time Dur-a-Flex customer and the only customer for this product.
When Laticrete’s orders dropped significantly, Dur-a-Flex suspected that Laticrete was using the Dur-a-Flex process in violation of the NDA that Laticrete had signed.
Earlier this week, I was called by a professional services provider (“Chelsea”) who was interested in my services. Chelsea had presented a confidentiality agreement – which she had found somewhere – to a prospective client for a large project. The prospect marked up the agreement pretty heavily, in ways Chelsea did not understand, and she wanted to make sure that her legal interests were protected.
I asked Chelsea to forward the marked-up agreement to me so I could see how much work I would have to do to help her. Within one minute, I could see the source of the problem. I called Chelsea. An edited transcript of our conversation follows:
A client recently was given, and asked me to review, a nondisclosure agreement that made me chuckle because it looked like something left over from decades ago. I was especially surprised because this NDA came from a well-known computer-products company.
Some of the document’s more endearing qualities: (more…)
I just made available on the Downloads page (sign up using the drop-down list in the sidebar) “Top Ten Legal Tips for Independent Contractors,” a document that describes how independent contractors can avoid exposing themselves to unnecessary legal risks.
Here are the titles of the ten tips, which are discussed in greater detail in the document:
- Choose the right type of legal entity for your business
- If you choose a corporation or LLC, comply with applicable formalities
- Buy the right types and amounts of insurance
- Identify and protect your intellectual property
- Use your form of client agreement whenever possible
- Be careful when assigning or waiving intellectual property rights
- Be careful when collaborating or subcontracting
- Be careful with nondisclosure / confidentiality agreements
- Avoid oral agreements whenever possible
- Understand what distinguishes independent contractors from employees
For more information about distinguishing independent contractors from employees (tip 10), please see Avoiding the “Independent Contractor” Trap.
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.
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:
- Failing to comply with corporate formalities
- Pretending that employees are independent contractors
- Neglecting to provide and update an employee handbook
- Failing to establish or adhere to discipline or termination procedures
- Failing to ensure that the company owns its intellectual property
- Believing that “open source” means “no restrictions”
- Thinking that all NDAs have the same terms
- Using another company’s standard-form agreement
- Giving “family jewels” to an overseas supplier
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.
When it comes to protecting intellectual property (IP), non-disclosure agreements (NDAs) are ubiquitous. What many entrepreneurs fail to realize, however, is that securing IP requires more than an NDA. For an NDA to do its job, the company must actually own the IP in the first place!
The most serious ownership problems arise when there is no written agreement between the company and the individual developing the IP. Depending on the nature of the IP (for example, whether copyright or patent protection applies) and whether the developer is an employee of the company or an independent contractor, the developer may own the IP. If this is the case, the company has, at most, a non-exclusive license.
Anyone who has worked in technology is familiar with nondisclosure agreements (NDAs). Differences among NDAs usually are small; they tend to cover the same territory in similar ways. However, NDAs from large companies often contain what I consider a most pernicious provision: A ” residuals clause “.
A residuals clause excludes from confidentiality obligations information that the recipient’s personnel retain in their memories. Here is a typical provision, from the Microsoft Confidentiality Agreement for Licensing Discussions [document no longer available online]:
“Further, the Receiving Party shall be free to use for any purpose the residuals resulting from access to or work with the Confidential Information of the Disclosing Party…. The term ‘residuals’ means trade secret information in intangible form, which is retained in memory by persons who have had access to the Confidential Information, including ideas, concepts, know-how, or techniques contained therein.”