Parties to a wide variety of transactions routinely sign non-disclosure agreements – NDAs – before exchanging confidential information. Confidentiality clauses are also often part of software licenses and other technology agreements.
However, as a recent decision from the US Court of Appeals for the Seventh Circuit shows, having a signed NDA isn’t necessarily sufficient to protect information.
In May of 2011, nClosures Inc. and Block and Company, Inc. started a business relationship in which nClosures designed metal cases for tablet computers (such as iPads) and Block manufactured them.
At the beginning of the relationship, the parties signed a confidentiality agreement that included the following clause:
The Parties … agree that the Confidential Information received from the other Party shall be used solely for the purposes of engaging in the Discussions and evaluating the Objective (the “Permitted Purposes”). Except for such Permitted Purposes, such information shall not be used, either directly or indirectly, by the Receiving Party for any other purpose …
After this was signed, nClosures revealed its designs to Block.
The first enclosure made under the agreement – the “Rhino Elite” – went on sale in October of 2011.
By March of 2012, Block developed a competing product, called the Atrio.
In November of 2012, nClosures sued Block, alleging breach of contract and breach of fiduciary duty.
The district court granted summary judgment to Block, concluding that no reasonable jury could find that nClosures took reasonable steps to keep its proprietary information confidential and thus that the confidentiality agreement was unenforceable.
The Seventh Circuit noted:
While nClosures and Block did sign a confidentiality agreement at the outset of their business relationship, no additional confidentiality agreements were required of individuals who accessed the design files for the Rhino or Rhino Elite devices. Additionally, neither the Rhino nor the Rhino Elite drawings were marked with words such as “confidential” or “contains proprietary information.” Furthermore, the drawings were not kept under lock and key, nor were they stored on a computer with limited access.
Thus, the court concluded:
These facts show that nClosures did not engage in reasonable steps to protect the confidentiality of its proprietary information, and therefore that the confidentiality agreement with Block is unenforceable.
More than Words
The case illustrates that it takes more than the words of an NDA to protect so-called confidential information. A party asserting that information is confidential must actually treat it as confidential, including marking it appropriately, restricting access, and assuring that all parties with access to it are bound by confidentiality agreements.