Protecting Trade Secrets with a Solid Nondisclosure Agreement

Trade secret protection of company information has become more popular as patent protection has become less certain and more expensive. A company must take “reasonable” steps to protect a trade secret in order to qualify for protection under the Uniform Trade Secret Act. Recent case law suggests that “reasonable” means that contractual obligations of secrecy need to be established with those who use or receive trade secrets in order to protect them. This is best done with a nondisclosure agreement. Using a nondisclosure agreement is nothing new, but it must be drafted carefully to avoid pitfalls.

Be specific in defining the confidential information. Often the disclosing party will define it very broadly, believing that will provide more flexibility to protect its rights. But broadly defined rights can lead to confusion about what information is actually protected. For greater certainty, be specific as to how long the information must be kept secret. The parties should agree to a period for protection based on how long it is actually needed.

Greater specificity in a non-disclosure agreement leads to greater predictability in the parties’ relationship with regard to how information is handled, and in litigation if the relationship sours.

The level of specificity necessarily is affected by the relative bargaining positions of the parties at the time they enter into a non-disclosure agreement, but in general more specificity allows parties to evaluate risk, a potential breach, and whether subsequent litigation is prudent.