Thursday, February 9, 2012

Confidentiality Agreements – Public Information Exclusion

In a LinkedIN group an individual posed the question about the use of non-public information. It seemed that non-public information was used in describing what needed to be held as confidential and want to understand the relationship between that and the exclusion for information that becomes public.He questioned whether it was superfluous.

My first thought was that non-public information is extremely broad description of what is to be held as confidential. As you assume potential liability with the receipt of confidential information its also not a good idea to agree to hold all non-public information as confidential. Any definition of what is to be held as confidential needs to be more clearly defined and much more limited. The simple fact is that not all non-public information of a company is information that needs protection. NDA's are used to protect trade secret information that can't be protected by Patent, Copyright or other IP protection. Its also to protect information which if disclosed could harm the discloser. They are not to protect any information that simply isn’t made public. You protect only the information that would harm your business if it was disclosed.

If the language did not go on and further define the scope of the of what was being disclosed it is not superfluous. In that case the use non-public was to describe the type of material that is being considered as confidential. The exclusion portion is an example of a condition subsequent. Conditions subsequent can be used to either create obligations or to excuse a party from an obligation. In confidentiality agreements conditions subsequent such as the information being made public is to excuse the receiver from responsibility to maintain that information as confidential.
If the language went on to further define the scope of what was being held as confidential, then the use of "non-public" would be superflous.

Conditions subsequent are used in confidentiality provisions because you can be provided information that is confidential at the time when it is disclosed to you. Events can occur after that point that make the information no long be confidential of the need to maintain it as confidential. Once that happens and the condition subsequent has been met the recipient may be excused from the obligation depending upon the facts.

For example, you could be provided with information about an unannounced product that a supplier wants you to hold as confidential because of the potential impact to them if the information were made public. That would be a good example of trade secret information. Once they announce and begin to sell the product any details about that product that they make public or that could be reasonably discovered with the purchase of the product would then be considered as public information. If you received no greater information than what at that point would be consider as public information, that would relieve the receiver from having to maintain the information as confidential.

However, If you received more trade secret information than what they disclose to the public or that which could be reasonably be identified with the purchase of the product, you would only be excused from having to maintain the public information portion as confidential. Any confidential information that you received in excess of that now public information would need to continue to be held confidential. For example if you were provided information about how a product works internally that could not be determined by a purchaser of a product and that wasn’t disclosed, that would need to be still held as confidential. If you were provided with information about how the product was made and the materials that were used, that type of information would not need to be held as confidential as a tear down analysis of the product would be able to identify the processes and materials used Once the product is sold that type of information would be consider to be public. It is also fairly common for companies to purchase their competitors products to see what they can learn about the materials and processes used.