Non-Disclosure Agreements – A Lesson to Be Learned

A non-disclosure agreement (NDA) is typically used between companies to protect confidential information during a potential transaction. Every NDA, however, is different. The specific terms and provisions in the NDA determine whether your trade secrets would be protected upon disclosure. Accordingly, each NDA should be tailored and specific to the transaction. A recent case decided by the Federal Circuit Court of Appeal demonstrates that special attention needs to be given to an NDA.

The Convolve v. Compaq and Seagate litigation involved a misappropriation of trade secret dispute between Convolve, the owner of certain intellectual property, and Compaq and Seagate. Although the dispute involved many different issues, of particular importance was the Federal Circuit’s holding that Convolve lost its trade secret status by failing to provide written follow-up memoranda as mandated by the NDA.

The particular NDA at issue stated that to trigger either party’s obligations, the disclosed information must be marked confidential at the time of disclosure or designated as confidential by written memorandum identifying the confidential information.

After entering into an NDA, Convolve gave presentations and sent slides from one presentation to both Compaq and Seagate. In the end, however, the parties did not enter into a license agreement as anticipated. A few years later, Convolve sued Compaq and Seagate alleging misappropriation of trade secrets, among other things. The District Court held, and the Federal Circuit affirmed, that the claimed trade secrets were not preserved according to the procedures listed in the NDA. Specifically, there were no written confidential follow-up memorandums mandated by the NDA. Therefore, the disclosures given at Convolve’s presentations were not subject to confidentiality obligations.

This case illustrates that parties should pay particular attention in drafting and understanding the NDA prior to disclosing confidential information. If the NDA has a marking requirement, the disclosure should ensure that markings are provided, and if a follow-up memorandum is required, then a memorandum should be provided immediately after disclosure. Furthermore, parties should also ensure that the NDA has procedures in place to remedy any inadvertent or accidental disclosure of confidential information. As demonstrated, special attention must be paid to an NDA because it could determine whether your trade secret will be protected.