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So You Think Your Trade Secrets Are Protected...

safe It’s time for a story.  We’ll start with the moral – read your non-disclosure agreements and comply with ALL of the requirements of the agreement to keep your information secret.  Back to the story:

In license negotiations for an invention,  Convolve and another party signed a non-disclosure agreement.   Like many non-disclosure agreements, the agreement required that the person disclosing secret information designate the information as confidential.   Convolve revealed trade secrets to the other party in reliance on the agreement, but failed to designate the trade secrets as confidential.   The license negotiations fell through and, predictably, the other party used the trade secrets.   Convolve sued, arguing that the trade secrets were protected by the non-disclosure agreement and also by trade secret law.

Convolve  lost on the trade secret claims, both at trial and on appeal.   The Federal Circuit Court of Appeals held that Convolve’s failure to designate the trade secrets as confidential according to the agreement meant that the trade secrets were not covered by the agreement.  The other party was free to use the trade secrets in any way that it desired.

Convolve also lost on its trade secret law claims.  The Federal Circuit held that the agreement trumped trade secret law.   In short, Convolve waived its other trade secret rights by signing the non-disclosure agreement.

In the give-and-take of a business negotiation, information can be disclosed in all sorts of ways – verbally over lunch, in e-mails or texts, in demonstrations and plant tours.   Some of the information disclosed will be confidential and some will not.  You and every person on your team who communicates with another party under a non-disclosure agreement MUST be aware of what information is confidential and the necessary steps to protect the confidential information under a non-disclosure agreement.

If you are the party disclosing information, another way to protect yourself is to make sure that the agreement protects all disclosed information without requiring a specific designation and that the rights of the disclosing party are in addition to its rights under trade secret law.

— Robert Yarbrough, Esq.