There are several industries that require valuable intellectual property to be shared with third parties. In order to protect intellectual property, most businesses use confidentiality agreements or non-disclosure agreements (NDA). However, there are certain circumstances where having a NDA may not be enough.
In the case of nClosures, Inc. v. Block & Co., the Seventh Circuit Court of Appeals ruled that a NDA signed between the designer of a product and the manufacturer was unenforceable because the owner of the intellectual property failed to take reasonable steps to protect its confidentiality.
Facts of the case
nClosures was the designer of protective cases for electronic tablets and other similar devices. Block agreed to manufacture the cases for nClosures and executed a confidentiality agreement protecting nClosures designs. However, five months following nClosures’s initial sale of the cases, Block began selling its own competing product.
A lawsuit for violation of the NDA was filed by nClosures. Block moved for summary judgment, which the trial court granted. The trial court reasoned that nClosures could not enforce its NDA because it had not taken reasonable actions necessary to safeguard its case designs. More specifically, on appeal the Seventh Circuit ruled that nClosures failed to enter into NDAs with other parties who had access to the designs of the cases. Furthermore, nClosures did not mark its design drawings as “confidential” when they were given to Block and failed to limit electronic of physical access to the designs. The court ruled that because nClosures did not take reasonable steps to protect the confidential status of its designs, its NDA with Block was unenforceable.
If you are the owner of a trade secret, the take-away from the nClosures decision is that securing a confidentiality agreement is essential, but also not enough to protect your intellectual property by itself. You must exercise due diligence in protecting the confidential nature of your trade secrets. Failure to be vigilant could result in nullifying the enforceability of your NDA.
If you have questions regarding the nClosures decision or how we can assist you with other business-related matters, contact Leslie S. Marell to schedule an initial consultation.
Many times the most valuable asset a business has is its “idea.” That idea is the basis upon which your product/ service is successful. Whether that is an innovative product or a specialized service, it can be worth a substantial amount of money, especially if it meets needs that are not being met by others. It is essential that your company take the necessary precautions to safeguard your idea.
One effective means for protecting confidential information and trade secrets is to require employees, independent contractors, business partners and any other third-parties to sign a non-disclosure agreement. Also commonly referred to as a “confidentiality agreement,” this type of contract binds the third-party to keep your non-public data protected. It can limit the allowed uses of the protected information. Importantly, if the third-party breaches a non-disclosure agreement, your business is entitled to recover damages and other remedies at law.
What should a non-disclosure agreement include? Below are a few of the key provisions to include in a confidentiality agreement:
- Identify protected information. The agreement should clearly set forth the data that is private and protected from being disclosed.
- Permitted disclosures. The contract should specify the situations where the confidential information is allowed to be shared with others. It should identify the circumstances and the parties with whom disclosures are permitted. Common examples include allowing the protected information to be shared with attorneys, accountants, insurers, and other professionals deemed appropriate.
- Legal remedies. In the event of a breach, any remedies available to the non-breaching party should be detailed in the contract.
- Other terms. A non-disclosure agreement is similar to other types of contracts and should contain provisions setting forth the applicable law that governs, whether the contract is assignable, the requirement of mediation or arbitration to resolve disputes and other similar stipulations. You may also want to consider including language saying that a performance bond is not required. A bond is often used as a guaranty of a party’s reimbursement of costs incurred in case a default occurs. Waiving the requirement of a bond can save you a significant amount of money and time.
Failure to have non-disclosure agreements signed by third-parties can put your business in jeopardy. It is important to protect the special concept or trade secret that sets you apart from the competition.
To learn more about non-disclosure agreements or how we can assist you with other business-related matters, contact Leslie S. Marell today.