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The Secrets About Non-Disclosure Agreements
In general, a Non-Disclosure Agreement (“NDA”) is a contract that treats certain information as confidential or as a “trade secret.”
The original purpose of most NDAs was to protect assets, such as development plans for a new product, confidential customer information, an innovative business model, a patent, or scientific testing and R&D.
NDAs are essential to the success of many companies and industries. Examples of confidential information that an NDA might protect are the formula for Coke, the Colonel’s recipe for KFC, and the Google search algorithms.
NDAs normally contain several sections:
Defining the Secret (by Inclusion). The negotiation of an NDA often requires give and take. One party to the NDA often wants the definition of the information to be kept confidential to be broad; the other party often wants a narrow definition. The definition of the “trade secret” to be protected often will refer to examples of what the parties consider to be confidential.
The problem with making the definition too broad is that a court might nullify or restrict the NDA if the parties had substantial knowledge of the trade secret prior to the NDA. Similarly, a court may narrow the definition of the secret if one party can show it gained substantial knowledge of a critical part of the trade secret outside the agreement.
Companies that require NDAs should be familiar with laws that may limit their application. For example, the Orlando Utilities Commission is a government body that supplies power to Universal Orlando. Earlier this year, Universal Orlando reportedly required government employees to sign NDAs before they could enter the premises to establish and maintain utilities. Government watchdogs complained that the NDA violated the Florida Sunshine law relating to government transparency and the openness of government records.
Defining the Secret (by Exclusion.) It is also common for an NDA to state what is not a trade secret. For example, the NDA might specifically describe certain products or services which are not secret, or state that public knowledge nullifies a portion of the secret. One recent example: Stormy Daniels says she went public with her allegations because Michael Cohen put them in the public domain.
Use of the Secret. An NDA must make it clear who owns the trade secret and who is bound to preserve its confidentiality. An NDA should describe the purpose for which access to the trade secret is being given and what the parties expect each other to do with the trade secret. An NDA should specify whether the receiving party may share some or all of the secret with others, such as its employees or agents; if so, the NDA should require the receiving entity to secure an NDA with each person with which it must share access to the secret information.
Duration of the NDA. An NDA should define the length of the NDA obligations. In some cases, the length can be defined by a certain period of time after the NDA is terminated.
Remedies. Many NDAs allow the owner of the secret information to obtain an injunction in court and attorneys’ fees if a party violates the NDA. To paraphrase Winston Churchill, the problem with this is that a lie gets halfway around the world before the truth has a chance to get on its pants. The same thing can be said about trade secrets. It is very hard to put toothpaste back in the tube.
The Morphing of NDAs. Over time, NDAs have morphed from protecting assets to hiding liabilities. Numerous examples of the creeping expansion of NDAs are frequently in the news.
Fox News paid millions in exchange for NDAs from women Roger Ailes was accused of sexually harassing before he was fired in 2016. Miramax did the same thing to hide Harvey Weinstein’s harassment of women.
Other public examples abound. In 2017 a USA Today reporter asked a medical center if it was aware that a physician had been accused twice of sexually harassing patients at a previous hospital. In reviewing its hiring practices, the medical center found that the prior hospital did not disclose the incidents or civil settlements pertaining to them because of NDAs.
Legislative Activity and “MeToo.” Employers and defendants who settle civil allegations often want the settlements to be confidential. That said, there is growing pushback to the use of NDAs to cover up sexual harassment and assaultive behavior. In reaction to “MeToo” revelations, many states, including California, Maryland, New York and Tennessee, are enacting laws that limit NDAs in sexual harassment settlements. A New Jersey law prohibits provisions that make settlements or the underlying conduct confidential in cases involving any type of discrimination, retaliation, or harassment. At the federal level, Congress inserted in the tax bill a provision that makes sexual harassment settlements with NDA not tax-deductible.
An NDA was once a customary term of most employment-related settlements. In light of the evolving law in this area, employers that settle these types of claims should review state limitations on NDAs.
Swanson Hatch, P.A. is a law firm founded by two former Minnesota Attorneys General: Lori Swanson and Mike Hatch, who consecutively served as Attorney General of the State of Minnesota for 20 years, from 1999 to 2019. Lori Swanson served as Attorney General from 2007 to 2019. Prior to that, she served as Solicitor General of the State of Minnesota and Deputy Attorney General. She also previously served as Chair of the Federal Reserve Board’s Consumer Advisory Council in Washington, D.C. She can be reached at lswanson@swansonhatch.com, or at 612-315-3037. Mike Hatch served as Attorney General from 1999 to 2007. Prior to that, he served as Commissioner of the Minnesota Department of Commerce for seven years, where he was the primary regulator of the insurance, real estate, mortgage, banking and financial services, and securities industries in Minnesota. He can be reached at mhatch@swansonhatch.com, or at 612-315-3037.
www.swansonhatch.com
431 South Seventh Street, Suite 2545
Minneapolis, MN 55415 612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
In general, a Non-Disclosure Agreement (“NDA”) is a contract that treats certain information as confidential or as a “trade secret.”
The original purpose of most NDAs was to protect assets, such as development plans for a new product, confidential customer information, an innovative business model, a patent, or scientific testing and R&D.
NDAs are essential to the success of many companies and industries. Examples of confidential information that an NDA might protect are the formula for Coke, the Colonel’s recipe for KFC, and the Google search algorithms.
NDAs normally contain several sections:
Defining the Secret (by Inclusion). The negotiation of an NDA often requires give and take. One party to the NDA often wants the definition of the information to be kept confidential to be broad; the other party often wants a narrow definition. The definition of the “trade secret” to be protected often will refer to examples of what the parties consider to be confidential.
The problem with making the definition too broad is that a court might nullify or restrict the NDA if the parties had substantial knowledge of the trade secret prior to the NDA. Similarly, a court may narrow the definition of the secret if one party can show it gained substantial knowledge of a critical part of the trade secret outside the agreement.
Companies that require NDAs should be familiar with laws that may limit their application. For example, the Orlando Utilities Commission is a government body that supplies power to Universal Orlando. Earlier this year, Universal Orlando reportedly required government employees to sign NDAs before they could enter the premises to establish and maintain utilities. Government watchdogs complained that the NDA violated the Florida Sunshine law relating to government transparency and the openness of government records.
Defining the Secret (by Exclusion.) It is also common for an NDA to state what is not a trade secret. For example, the NDA might specifically describe certain products or services which are not secret, or state that public knowledge nullifies a portion of the secret. One recent example: Stormy Daniels says she went public with her allegations because Michael Cohen put them in the public domain.
Use of the Secret. An NDA must make it clear who owns the trade secret and who is bound to preserve its confidentiality. An NDA should describe the purpose for which access to the trade secret is being given and what the parties expect each other to do with the trade secret. An NDA should specify whether the receiving party may share some or all of the secret with others, such as its employees or agents; if so, the NDA should require the receiving entity to secure an NDA with each person with which it must share access to the secret information.
Duration of the NDA. An NDA should define the length of the NDA obligations. In some cases, the length can be defined by a certain period of time after the NDA is terminated.
Remedies. Many NDAs allow the owner of the secret information to obtain an injunction in court and attorneys’ fees if a party violates the NDA. To paraphrase Winston Churchill, the problem with this is that a lie gets halfway around the world before the truth has a chance to get on its pants. The same thing can be said about trade secrets. It is very hard to put toothpaste back in the tube.
The Morphing of NDAs. Over time, NDAs have morphed from protecting assets to hiding liabilities. Numerous examples of the creeping expansion of NDAs are frequently in the news.
Fox News paid millions in exchange for NDAs from women Roger Ailes was accused of sexually harassing before he was fired in 2016. Miramax did the same thing to hide Harvey Weinstein’s harassment of women.
Other public examples abound. In 2017 a USA Today reporter asked a medical center if it was aware that a physician had been accused twice of sexually harassing patients at a previous hospital. In reviewing its hiring practices, the medical center found that the prior hospital did not disclose the incidents or civil settlements pertaining to them because of NDAs.
Legislative Activity and “MeToo.” Employers and defendants who settle civil allegations often want the settlements to be confidential. That said, there is growing pushback to the use of NDAs to cover up sexual harassment and assaultive behavior. In reaction to “MeToo” revelations, many states, including California, Maryland, New York and Tennessee, are enacting laws that limit NDAs in sexual harassment settlements. A New Jersey law prohibits provisions that make settlements or the underlying conduct confidential in cases involving any type of discrimination, retaliation, or harassment. At the federal level, Congress inserted in the tax bill a provision that makes sexual harassment settlements with NDA not tax-deductible.
An NDA was once a customary term of most employment-related settlements. In light of the evolving law in this area, employers that settle these types of claims should review state limitations on NDAs.
Swanson Hatch, P.A. is a law firm founded by two former Minnesota Attorneys General: Lori Swanson and Mike Hatch, who consecutively served as Attorney General of the State of Minnesota for 20 years, from 1999 to 2019. Lori Swanson served as Attorney General from 2007 to 2019. Prior to that, she served as Solicitor General of the State of Minnesota and Deputy Attorney General. She also previously served as Chair of the Federal Reserve Board’s Consumer Advisory Council in Washington, D.C. She can be reached at lswanson@swansonhatch.com, or at 612-315-3037. Mike Hatch served as Attorney General from 1999 to 2007. Prior to that, he served as Commissioner of the Minnesota Department of Commerce for seven years, where he was the primary regulator of the insurance, real estate, mortgage, banking and financial services, and securities industries in Minnesota. He can be reached at mhatch@swansonhatch.com, or at 612-315-3037.
www.swansonhatch.com
431 South Seventh Street, Suite 2545
Minneapolis, MN 55415
612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.