Make Sure Your NDA Keeps Your Protections under Trade Secret Laws

The Federal Circuit Court of Appeals recently ruled in a case involving a non-disclosure agreement in license negotiations. The NDA was intended to protect the trade secrets of each party. However, the NDA also required that such trade secrets either be designated as confidential by the NDA, or be later designated as such in a written memorandum. However, the plaintiff in the Federal Circuit case failed to designate the trade secrets it disclosed in subsequent meetings of the parties as confidential. Among their legal theories, the plaintiffs argued that California (where the parties were located) trade secret law nevertheless protected the disclosed trade secrets even though they were not marked confidential by a written memorandum, and therefore the defendant’s use of the trade secrets constituted tortious misappropriation of trade secrets. The Federal Circuit ruled that the written agreement of the NDA supplanted any implied understanding granted by the statutory and case trade law. Furthermore, the court noted that the California Uniform Trade Secret Act held that misappropriation could only occur under circumstances that gave rise to a duty to maintain secrecy. When entering into NDAs, it is important to note the requirements of the agreement — some can require the parties to designate that material which they consider to be confidential or a trade secret. Under this ruling, which coming from the Federal Circuit could have broad impact, parties to a NDA may have greater responsibilities or burdens than what is required under the common or statutory trade secret law. And above all, it is important to stress the confidentiality of trade secrets when disclosing to other parties in negotiations or similar circumstances, as a public disclosure — which disclosure without proper notice of confidentiality could result in — can serve to eliminate the protection of trade secret law.

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