Drafting or Reviewing a NDA in Louisiana
A non-disclosure agreement (NDA) is a contract between parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but do not wish the disclose to third parties.
NDA’s are commonly signed when companies, individuals, or other entities are considering doing business and need to understand the processes used in each other’s business for the purpose of evaluating the potential relationship. They are also often used in an employment relationship. An NDA can protect any type of information that is not generally known and can often cover subjects such as a design for a new product; an unpublished patent application; a company’s financial information; client, customer or vendor lists; business strategies as well as proprietary manufacturing processes. When an employee executes an NDA, the employee promises not use or disseminate any company-owned, confidential information, during the term of employment and usually for a specific period afterwards.
NDA’s are essential for businesses because the FBI and American Society of Industrial Security estimate that U.S. businesses lose at least $24 billion a year because of stolen trade secrets – most of it from the sale of secrets by employees to competitors. Consequently, NDA’s must be properly drafted. A poorly constructed NDA can be challenged and invalidated in court, meaning that the party who signed it may have the ability to freely disclose the confidential information.
The Difference Between Unilateral and Mutual Non-Disclosure Agreements
The two common types of NDA’s are unilateral, or one-way; and bilateral or mutual. A unilateral NDA is used when one party is making a disclosure and needs the other party to maintain its confidentiality. An employment NDA is generally unilateral. A mutual NDA is an agreement where both parties will be supplying information that is intended to remain secret. This type of agreement is common when businesses are considering a joint venture or merger.
Most NDA’s contain the following five elements:
- Definition of the Confidential Information – This is a list of the types of confidential information to be protected under the agreement, or it can detail the specific information that cannot be disclosed. In the former situation, its purpose is to establish the general subject matter of the non-disclosure without actually revealing any secrets. In the latter, an explicit secret, or body of information, is enumerated.
- Exclusions from Confidential Information – An NDA will likely exclude some information from protection, meaning that a party receives it with no obligation to protect it. Examples of such information include information created or discovered by the receiving party prior to, or independent of, involvement with the disclosing party; information lawfully obtained through any other source; or information already in the public domain.
- Obligations of the Receiving Party – An NDA will generally require the receiving party to hold and maintain the information in confidence and limit its use; and that the receiving party may not breach the confidential relationship, induce others to breach it, or induce others to acquire it by improper means.
- Time Periods – Some NDA’s will require that the receiving party maintain the protected information for specific period of time or a specific number of years. Five years is a common time period in many NDA’s, although a receiving party can also be bound by confidentiality indefinitely.
- Miscellaneous Provisions – As in any contract, parties can insert any suitable, legal miscellaneous provisions. Some common miscellaneous provisions include: conflicts of law, forum selection, dispute resolution and severability provisions.
Breach of Non-Disclosure Agreement Contract
If an NDA is breached, the party who revealed the confidential information can be sued for damages, and even held in contempt of court which could lead to criminal charges. If contemplating a suit for a breach of contract or a violation of the terms of an NDA, the aggrieved party must first determine that the contract is valid, and that an actual breach has occurred. Forty-seven states and the District of Columbia have trade secret laws adopted from the Uniform Trade Secrets Act (UTSA). Louisiana’s trade secret law can be found at La. Rev. Stat. Ann. § 51:1431 et seq. Under Louisiana law, misappropriation refers to the acquisition of a trade secret by someone who knows or has reason to know that the trade secret was acquired by improper means, e.g. theft, bribery, misrepresentation, breach, or inducement of a breach of duty to maintain secrecy. It also includes the disclosure or use of a trade secret without consent by someone who used improper means to acquire knowledge of the trade secret – for example, an ex-employee who reveals company secrets to a rival firm.
Damages for Breach of Contract
A victim of trade secret misappropriation can also seek financial compensation that measures the actual loss attributed to the theft or the profits (or “unjust enrichment”) acquired by recipient. In egregious situations, a Louisiana court can award punitive damages up to twice the amount of any award. Attorney fees can also be awarded in egregious (willful and malicious) situations. Conversely, they can also be awarded if a claim is brought in bad faith. In addition to Louisiana’s state laws regarding trade secrets, there are also federal laws that apply. The Economic Espionage Act of 1996 makes the theft of trade secrets a federal crime. The Act prohibits the theft of a trade secret by a person intending or knowing that the offense will injure a trade secret owner. The Act’s definition of “trade secret” is similar to that of the Uniform Trade Secrets Act. The penalties for a violation of this statute include a potential prison term of 15 years and fines up to $5 million, depending on whether the defendant is an individual or a corporation. A private party can still sue for trade secret theft even if the federal government files a criminal case under the Economic Espionage Act.
Contact a Louisiana Contract Attorney
New Orleans commercial litigation attorney Matthew A. Moeller is an experienced litigator whose practice includes representing both plaintiffs and defendants in cases resulting from commercial and business disputes. If you have any questions regarding the drafting, signing, implementation or litigation of an NDA, you can obtain legal representation by contacting our office. We will be happy to provide a consultation regarding your situation.