What follows are our general observations and opinions. It is not legal advice, and it is not a definitive statement of California law. Every agreement is different, and the wording of your own document is what will decide a dispute.
Most non-disclosure agreements we are asked to look at would not do much work if they were ever tested. They are short, they were found online or carried over from an unrelated deal, and the parties signed them to get to the real conversation. The trouble is that an NDA is the one document in a commercial negotiation that only matters after something has gone wrong, which is exactly when its defects become expensive.
Our view is that three provisions decide whether an NDA is worth anything: how confidential information is defined, what the carve-outs give away, and how long the obligation lasts. Remedies matter too, but a well-drafted remedy attached to a badly-drafted definition protects nothing. If you read only one part of an NDA before signing it, read the definition.
Defining confidential information
There are two common approaches and each fails differently. A marking requirement — only material stamped confidential is protected — is precise and easy to administer, and in practice nobody marks anything. We have seen disclosing parties lose the protection they bargained for because their own team emailed the important material without the legend. If you accept a marking requirement, accept also that someone has to actually do the marking, and build in a short window to designate orally disclosed information in writing afterwards.
The opposite approach — everything disclosed in connection with the discussions is confidential — is easy to comply with and hard to enforce, because a court asked to restrain the use of an undefined category tends to want to know what specifically was taken. Our preference on the disclosing side is a broad definition anchored by a non-exhaustive list of the categories that genuinely matter in that deal: customer lists, pricing and margin data, source code, formulations, supplier terms, financial statements, or whatever the actual crown jewels are.
The carve-outs, which are standard and mostly fair
Four exclusions appear in nearly every NDA and we would not usually fight them: information already known to the recipient without an obligation of confidence, information that is or becomes public through no fault of the recipient, information received from a third party entitled to disclose it, and information independently developed without reference to what was disclosed.
The detail worth negotiating is who has to prove these. A carve-out that the recipient must establish by contemporaneous written records is meaningfully narrower than one that merely recites the categories. There is also a fifth exclusion — disclosure required by law or court order — which should be drafted as a permission to disclose the minimum required, with notice to the disclosing party where notice is lawful, rather than as a general release from the obligation.
The residuals clause
This is the provision we flag most often, because it is easy to miss and it can swallow the agreement. A residuals clause permits the recipient’s personnel to use information retained in their unaided memory. Read literally, it lets the other side use almost anything that a person remembered rather than copied, and it is frequently drafted to override the confidentiality obligation rather than sit alongside it.
It is not always unreasonable. A large company receiving pitches from many vendors has a genuine problem with contaminating its own engineers. But a small company disclosing its core technology to a much larger potential partner should understand what it is agreeing to, and our view is that if a residuals clause is accepted it should at minimum exclude the specifically listed categories of crown-jewel information and should not extend to any license under patents or copyrights.
How long it lasts
A fixed term of three or five years is conventional and is fine for most commercial information, which has a short shelf life. It is not fine for trade secrets. Information only qualifies as a trade secret for so long as it derives value from not being generally known and is the subject of reasonable efforts to keep it secret, so an NDA that expressly terminates all obligations after five years can be used to argue that the discloser stopped protecting it.
The usual fix is a split term: a fixed period for confidential information generally, and an obligation that continues for trade secrets for as long as they remain trade secrets under applicable law. We would also keep return-or-destroy obligations, and the exception for archival backups, consistent with that split.
Remedies and where you will end up
Breach of an NDA is difficult to prove and harder to value, which is why the remedy that matters is usually an injunction rather than damages. Most agreements include an acknowledgement that breach would cause irreparable harm and that equitable relief is appropriate. That stipulation helps, though our reading is that it does not relieve a party of having to actually make its case to the court.
Two practical points follow. First, an arbitration clause that does not expressly preserve the right to seek interim injunctive relief from a court can cost you the speed you need. Second, California’s trade secret statute occupies a good deal of this ground and can displace overlapping common law claims, so the relationship between the contract claim and the statutory claim is worth thinking about at the drafting stage rather than at the pleading stage.
What an NDA does not do
- It does not assign ownership of anything. If work product or improvements will be created, that needs its own provision.
- It does not stop independent development, and the carve-outs generally protect it expressly.
- It does not create an obligation to do a deal, and a well-drafted one says so.
- It does not make a disclosure safe. In our experience the most effective protection in a commercial negotiation is staging what you disclose — structure, then detail, and the genuinely irreplaceable material last, if at all.
Mutual or one-way
Parties default to mutual agreements because they feel even-handed, but a mutual NDA imposes obligations on a party that may be disclosing nothing. If information is flowing in one direction, a one-way agreement is cleaner and the negotiation is simpler. If it is genuinely two-way, check that the definition and the carve-outs actually work in both directions — mutual agreements are often a one-way draft with the names swapped in half the places.
Drafting and reviewing confidentiality agreements is work we handle on an hourly or flat-fee basis, agreed with you in advance. It is not contingency work. If you are about to sign an NDA for a transaction that matters, or you think one has been breached, call us at (310) 556-9692.
Related reading: our contracts resource page — everything we have written on commercial agreements; what a business purchase agreement actually does — where NDAs usually lead; indemnification clauses and what you are agreeing to — the other provision that decides who pays; and which California contracts must be in writing — the formality rules behind all of this.
These are our general observations and opinions only. They are not legal advice, they are not a definitive statement of California law, and reading this does not create an attorney-client relationship with our firm. If a confidentiality issue is live, the specific wording of your agreement matters and is worth discussing directly.
TALK TO A LOS ANGELES ATTORNEY
Tell us what is happening and we will get back to you. Your consultation is free, and we will tell you honestly whether we think you have a case worth pursuing.
Thank you. We received your request.
A confirmation is on its way to your email. An attorney will review your information and reach out soon.
Rather talk now?
