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August 11, 2022
Author: Michael R. Flam, President, of Michael Robert Flam P.A., in Boca Raton, Florida USA, a Rotarian since 2018 who serves as Administrative Committee Chair of Rotary eClub One of District 5450. This publication is for general informational purposes only. It may not be used, distributed or copied without my prior written permission. This publication shall be governed by my Legal Notice on flamlawyer.com. Copyright 2022. All rights are reserved by Michael Robert Flam P.A.
Many Rotarians own their own business or work for a company owned by someone else. Employees are a key asset of a business. So are the company’s trade secrets and other proprietary information that separate that business from its competitors. Innovation, through research, development and technology, is how successful businesses maintain their competitive advantage. Best practice companies require their personnel to sign a Non-Disclosure Agreement (NDA), more universally known as a confidentiality agreement, and any third parties who that company needs to disclose its confidential information to develop, manufacture, market, distribute, and sell a new product or service, or to improve an existing one.
A NDA is the base layer of protection for a company's confidential, non-public and proprietary information. It should be signed by the party receiving the confidential information (recipient) before such information is communicated by the disclosing party (discloser). A NDA is strong evidence that a discloser has reasonably acted to protect its confidential information. Since a NDA is a contract, it will have custom terms about confidentiality and standard terms that are part of any well prepared contract. An NDA should at least include: (1) a definition of "confidential information" and any exceptions to that definition; (2) the confidentiality protection period; (3) its limited purpose; (4) who can view the confidential information; and (5) how the discloser can protect its confidential information (a valuable business asset) if the NDA is violated by the recipient.
Confidential information includes any non-public and proprietary information that a company would not want anyone else to obtain, especially its competitors. This would typically cover formulations and other trade secrets; supplier and vendor lists; pricing of raw materials used to make the finished product, packaging and transportation costs; financial, sales and customer information; and strategic and marketing plans. Such information varies based on the business operation and industry of the discloser. Discloser will want a broad definition of confidential information. Confidential information may be oral or written, electronic or paper, or any other form of business record. Exceptions to confidential information include: (1) information already in the public domain; (2) information already developed independently by the recipient; or (3) information lawfully obtained by recipient from a different party who did not violate any NDA with discloser. These exceptions imply that the recipient will act in good faith. Recipient will want the exceptions to be limited in scope to minimize the risk of violating the NDA.
Discloser should protect its trade secrets for the longest time period permitted under the governing law of the NDA. Trade secrets have economic value (whether actual or potential) by not being generally known and readily ascertainable by proper means. Trade secrets may be a formula, program, device, method, technique, or process. Trade secrets are the most valued type of confidential information to protect, in large part, because they provide a competitive advantage and exemplify the valued role of innovation in commerce. All other confidential information should be protected until it is foreseeably no longer novel or valuable.
Discloser should limit the recipient’s viewers to only those within the recipient’s business operation (and its professional consultants) who have a “need to know” to carry out the limited purpose of the NDA. Recipient should agree to at least protect the discloser’s confidential information in a commercially reasonable manner in that industry. Simply stating that recipient will protect discloser’s confidential information like its own could be inadequate. Some disclosers may even insist on having the recipient list all who will view the discloser’s confidential information and require each person identified to sign a separate NDA.
Due to the economic value of confidential information and the detrimental effect that could result if such information is improperly disclosed or used by actual or threatened misappropriation, the NDA should provide for every available remedy under law if the recipient violates the NDA. These remedies typically include: (1) the right to obtain injunctive relief from a court to stop the unauthorized disclosure or use; (2) monetary damages for any consequential or incidental loss; (3) reasonable attorneys’ fees and costs; and (4) any other relief that a court deems appropriate under the circumstances based on the severity of the breach and the actions of the recipient or unauthorized user, which may include awarding punitive damages. It is prudent for the discloser to include in the NDA that if recipient is compelled by court order, law enforcement, or a regulatory agency to disclose or release confidential information, the discloser shall first have the right to limit or oppose that disclosure.
Michael R. Flam