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Beware: Residuals
clauses in your NDA
The terms of the NDA are normally crafted for the benefit of the
Disclosing Party to protect her/his confidential information, unless
it’s a mutual agreement (1) wherein the benefits of the agreement
apply equally to both parties.
(1) Link to https://everynda.com/blog/unilateral-vs-mutual-nda-agreements/
What are residuals clauses
This clause is generally known as the "residuals" clause or
"residual information" clause.
Basically, this residuals clause allows the Receiving Party
to share and use general information and concepts that are retained
as a result of the working relationship, including confidential
information.
Here's an example of a residuals clause (2) that's very relaxed and
broad in its scope, mainly because it's used in a mutual agreement
that benefits both parties:
(2) Link to http://www.hbs.edu/newventurecompetition/Pages/default.aspx
(g) The receipt of Confidential Information pursuant to this Agreement will not
prevent or in any way limit either party from: (i) developing, making or marketing products or services
that are or may be competitive with the products or services of the other; or (ii) providing products or
services to others who compete with the other.
Don't sign NDA with residuals clause
There are a few situations where it's especially dangerous for you
to allow residuals clauses in your NDA:
- Trade secrets.
- Where your business’ survival is dependent on the
confidential information.
- Patents and copyrights.
The compromise around
residuals clauses
1. Use a narrow definition and scope.
Although this clause could be more restrictive, this clause from
the European IPR Helpdesk’s Mutual NDA (3) does at least provide
that the Receiving Party cannot act in breach of the agreement:
(3) Link to https://www.iprhelpdesk.eu/sites/default/files/newsdocuments/European%20IPR%20Helpdesk%20-%20mutual%20NDA%20-%202014.pdf
5. Competition
The receipt of Confidential Information pursuant to this Agreement will not prevent or in
any way limit either Party from developing, making or marketing products or services
that are or may be competitive with the products or services of the other; or providing
products or services to others who compete with the other Party; as long as those re-
sults have not become from a breach of this Agreement.
2. Have separate categories of confidential information.
3. Restrictions on key personnel.
4. Independent contractor restriction.
5. Prohibit sharing of information with third parties.
6. Mutual obligations under the same NDA.
7. Limit your disclosures.
8. Expressly state that no rights are to be granted.
Here's an example of a clause from Microsoft’s Confidentiality
Agreement for Licensing Discussions (4):
(4) Link to https://download.microsoft.com/download/a/1/7/a17f8b3a-137e-46a4-9ec0-d9d9b9a1b59a/CA%20Master%20.pdf
(b) The terms of confidentiality under this Agreement shall not be construed to limit either the
Disclosing Party or the Receiving Party’s right to independently develop or acquire products without use of
the other party's Confidential Information. Further, the Receiving Party shall be free to use for any purpose
the residuals resulting from access to or work with the Confidential lnformation of the Disclosing Party,
provided that the Receiving Party shall not disclose the Confidential Information except as expressly
permitted pursuant to the terms of this Agreement. The term "residuals" means trade secret ' ormation in
intangible form, which is retained in memory by persons who have had access to the Confidential
Information, includin ideas, concepts, know-how or techniques contained therein. The Receivin Party
shall not have any obligation to limit or restrict the assignment of such persons or to pay to royalties or any
work resulting from the use of residuals. However, this sub-paragraph shall not be deemed to grant to the
Receiving Party a license or any other right under the Disclosing Party’s copyrights or patents.
Beware Residuals Clauses in your NDA
Credits
Icon from slide 1 created by Nikita Kozin from the Noun Project.

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Beware Residuals Clauses in your NDA

  • 2. The terms of the NDA are normally crafted for the benefit of the Disclosing Party to protect her/his confidential information, unless it’s a mutual agreement (1) wherein the benefits of the agreement apply equally to both parties. (1) Link to https://everynda.com/blog/unilateral-vs-mutual-nda-agreements/
  • 4. This clause is generally known as the "residuals" clause or "residual information" clause. Basically, this residuals clause allows the Receiving Party to share and use general information and concepts that are retained as a result of the working relationship, including confidential information. Here's an example of a residuals clause (2) that's very relaxed and broad in its scope, mainly because it's used in a mutual agreement that benefits both parties: (2) Link to http://www.hbs.edu/newventurecompetition/Pages/default.aspx
  • 5. (g) The receipt of Confidential Information pursuant to this Agreement will not prevent or in any way limit either party from: (i) developing, making or marketing products or services that are or may be competitive with the products or services of the other; or (ii) providing products or services to others who compete with the other.
  • 6. Don't sign NDA with residuals clause There are a few situations where it's especially dangerous for you to allow residuals clauses in your NDA: - Trade secrets. - Where your business’ survival is dependent on the confidential information. - Patents and copyrights.
  • 8. 1. Use a narrow definition and scope. Although this clause could be more restrictive, this clause from the European IPR Helpdesk’s Mutual NDA (3) does at least provide that the Receiving Party cannot act in breach of the agreement: (3) Link to https://www.iprhelpdesk.eu/sites/default/files/newsdocuments/European%20IPR%20Helpdesk%20-%20mutual%20NDA%20-%202014.pdf
  • 9. 5. Competition The receipt of Confidential Information pursuant to this Agreement will not prevent or in any way limit either Party from developing, making or marketing products or services that are or may be competitive with the products or services of the other; or providing products or services to others who compete with the other Party; as long as those re- sults have not become from a breach of this Agreement.
  • 10. 2. Have separate categories of confidential information. 3. Restrictions on key personnel. 4. Independent contractor restriction. 5. Prohibit sharing of information with third parties. 6. Mutual obligations under the same NDA. 7. Limit your disclosures.
  • 11. 8. Expressly state that no rights are to be granted. Here's an example of a clause from Microsoft’s Confidentiality Agreement for Licensing Discussions (4): (4) Link to https://download.microsoft.com/download/a/1/7/a17f8b3a-137e-46a4-9ec0-d9d9b9a1b59a/CA%20Master%20.pdf
  • 12. (b) The terms of confidentiality under this Agreement shall not be construed to limit either the Disclosing Party or the Receiving Party’s right to independently develop or acquire products without use of the other party's Confidential Information. Further, the Receiving Party shall be free to use for any purpose the residuals resulting from access to or work with the Confidential lnformation of the Disclosing Party, provided that the Receiving Party shall not disclose the Confidential Information except as expressly permitted pursuant to the terms of this Agreement. The term "residuals" means trade secret ' ormation in intangible form, which is retained in memory by persons who have had access to the Confidential Information, includin ideas, concepts, know-how or techniques contained therein. The Receivin Party shall not have any obligation to limit or restrict the assignment of such persons or to pay to royalties or any work resulting from the use of residuals. However, this sub-paragraph shall not be deemed to grant to the Receiving Party a license or any other right under the Disclosing Party’s copyrights or patents.
  • 14. Credits Icon from slide 1 created by Nikita Kozin from the Noun Project.