What's the difference between a trade secret agreement and an NDA? What legal tools does a business have to protect confidential information?
Read more at the blog:
In order to protect these secrets, there are several common ways
that businesses use to protect these secrets.
These include using a patent, a non-competing agreement, a
non-solicitation agreement and a non-disclosure agreement
Each of these legal tools can produce very different results.
With a patent, you're establishing a monopoly on a proprietary item
but only for a limited amount of time.
Not everything can be patented.
When filling for a patent, you're required to reveal all details about
your secret and this is made available to the public.
A trade secret has no time limitation and can last forever.
It remains a trade secret indefinitely as long as you can prove that
the secret continues to possess commercial value, confers some
sort of economic benefit to you and you have made an effort to
keep it a secret.
So, besides taking measures to protect your trade secret, what
else can you do?
The non-disclosure agreement - sometimes shortened as "NDA"
- is also known as a trade secret agreement or a confidentiality
An NDA is a legally binding contract between parties that
requires them to keep certain information confidential.
Define trade secrets and confidential
A trade secret is treated differently from merely confidential
information by the courts.
On top of providing such a definition in your legal agreement,
you should develop a practice of clearly marking information
that you disclose as either "Confidential" or "Trade Secret" to
In an ordinary NDA, it's advisable that you specify a defined period
of time for which the confidentiality is to last for.
This is to avoid any potential risk of a court declaring that an NDA
is too restrictive.
However, this should not apply when it comes to trade secrets.
Here are example clauses from Coca Cola’s Agreement on
Confidentiality, Non-Competition and Non Solicitation (1) that
demonstrate the difference in the amount of time confidentiality
is expected for information that's considered a trade secret and
what's merely confidential:
It's also important to specify what jurisdiction will apply to the NDA
you'll draft and send to be signed in the event of the need for court
An example of a clause that provides for jurisdiction can be found
in an NDA from Harvard Business School (2):
(b) The validity, construction and performance of this Agreement shall be governed
and construed in accordance with the laws of _____________________(state) applicable to connects
made and to be wholly performed within such state, without giving effect to any conflict of laws
provisions thereof. The Federal and state courts located in _____________(state) shall have sole and
exclusive jurisdiction over any disputes arising under, or in any way connected with or related to, the
terms of this Agreement and Receiving Part, (i) consents to personal jurisdiction therein; and (ii) waives
the right to raise forum non convenlons or any similar objection.s
Termination of relationship
You should also specify what you wish the other party to do with
any confidential information when your contractual relationship
ends or they leave your business.
You could require that the other party returns all originals and
copies of the information back to you or destroy them within a
certain period of time and retain no other records or copies.
A non-compete agreement is a contract that prevents the other party
from later on competing with you for a specific period of time and in
a certain geographic location.
A pure NDA normally only restricts unauthorized disclosures over
confidential information but it doesn't stop the use of the confidential
information once it has been disclosed.
One of the downsides of a non-competing agreement though is that it
has to be reasonable as courts loathe to uphold something that comes
across as an unfair restraint on commercial competition.
An example of a combined non-disclosure, non-compete and
non-solicitation clauses can be found again in the Coca Cola’s
Agreement on Confidentiality, Non-Competition and Non
A patent, and related business talks around a patent, can also be
combined with an NDA.
However, a patent could be paired very well with a trade
secret in certain circumstances.
You only have to reveal secrets at the time of the filing of your
patent application but not while the patent is in force.