Trade Secrets and NDAs: What to Know

Businesses risk a great deal when they share their trade secrets with employees or other individuals and entities—like franchises, business partners, or potential buyers.  

These trade secrets can be the lifeblood of a company. What happens if one of those individuals or entities walks away with a client list, a secret recipe, or a cutting-edge algorithm? 

Mainly, businesses rely on trade secret laws and non-disclosure agreements (NDAs) for protection. The legal obligations in these contracts can make someone think twice before engaging in trade secret misappropriation, and they give you the means to take action if misappropriation occurs. 

NDAs Provide Broad Protection for Businesses

To be protected by statute, trade secrets must meet specific legal requirements. But an NDA can cover more than just information that meets the technical definition of a trade secret. 

NDAs can also cover proprietary and non-public information the business wants to keep private. They can be broad, offering sweeping protection for businesses. 

In addition to defining what information is protected, NDAs can stipulate how that information can be used. This gives the business a great deal of control, even in complex situations. 

Listing What Information Is Covered by an NDA

There are three basic approaches to defining the information covered by an NDA:  

1. Providing a general description of that information: This approach, usually just listing the categories of covered information, provides broad and flexible coverage. However, if a dispute arises, you may find yourself in a debate about whether particular information is covered. This can make enforcement more challenging and costly.
2. Providing a specific description of the information: Specific descriptions eliminate debate about what’s covered by the NDA. However, there are drawbacks. They can be inflexible and require amendment of the NDA if there are changes in the confidential information.
3. Marking or designating each item covered: Using a marking protocol is highly specific and completely flexible, so it’s the best of both worlds in many ways. However, it can be the most burdensome approach in practice.

Courts have upheld NDAs that took each of these approaches, including NDAs that used general descriptions of covered information and employed broad language in describing it. However, some courts have taken issue with NDAs that are too broad. Again, speaking with legal counsel about what’s right for your business is best. 

Talk With An Attorney About Protecting Your Trade Secrets

If you have questions about whether an NDA can protect your business’s trade secrets, get legal help from an experienced business lawyer. To get started, call our Denver law firm at 303-534-4317 or send us a message.