What state laws regulate NDAs in Delaware?

Title 6 – Chapter 20. Trade Secrets of the Delaware Code – provides protection for actual or threatened misappropriation of trade secrets, however would arguably not protect from a voluntary disclosure from an authorized person. Moreover not all confidential information that company wants to protect rises to the level of a trade secret that is defined as information, including a formula, pattern, compilation, program, device, method, technique or process, that: derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. NOTE: Confidential information and trade secrets are distinguished from each other in terms of duration the protection can be granted by court. The latter usually has an indefinite period of confidentiality if it continues to protect legitimate economic interests and does not unduly burden the other side.

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Delaware Non-Disclosure Agreement Template

Created by:

[Disclosing Party.FirstName][Disclosing Party.LastName][Disclosing Party.Company]

Prepared for:

[Recipient.FirstName][Recipient.LastName][Recipient.Company]

THIS Non-Disclosure Agreement (the “Agreement”), is made and entered into this [Document.CreatedDate] by and between: [Disclosing Party.Company] and [Recipient.Company] (at times Disclosing Party and Recipient shall be individually referred to as a “Party” and collectively as the “Parties”).

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Recipient and the Disclosing Party hereby agree as follows:

1. Purpose.

The Recipient recognizes that the Disclosing Party has certain proprietary, confidential, and trade secret information (the “Confidential Materials”) as defined below relating to the business of the Disclosing Party and wishes to receive certain proprietary, confidential and trade secret information in connection with ____________________________________________________________________ ____________________________________________________________________

(the “Business Purpose”), and the Disclosing Party desires that all such information shall be kept confidential by Recipient. In consideration of the disclosure by the Disclosing Party the Confidential Materials the Recipient agrees to keep such information confidential in accordance with the terms and conditions set forth in this Agreement.

2. Confidential Materials.

As used herein, the term “Confidential Materials” means and includes any and all information or materials whether oral, written or in any other form relating to the Disclosing Party or the Business Purposes furnished to Recipient, or discovered by Recipient through provided access, including any and all information provided to Recipient or to any of Recipient’s directors, officers, employees, agents, or representatives (including financial advisors, consultants, and legal counsel), and all analysis, compilations, studies, or other documents or records prepared by or on behalf of Recipient which contain or otherwise reflect or are generated from such materials in connection with the Disclosing Party or the Business Purpose. Confidential Materials may include “Trade Secrets” as defined by the State Law of Delaware as well as other confidential and proprietary information that is of value to the Disclosing party, including but not limited to: customer lists, vendors/suppliers lists, business or strategic plans, financial projections, future marketing campaigns, training guides, existing or proposed bids, costs etc.

Even though this agreement trying to widen the scope of the information that disclosing party seek to protect: oral as well as written communication, original information as well as information derived from it, trade secrets (something of the present or future economic value and subject to reasonable efforts to be maintained in secrecy) and other confidential information that doesn’t satisfy the requirements to be considered a trade secret,– everything can not be protected as confidential information. Something may not have economic value or something can be named specifically, but still be not handled properly to maintain its secrecy. So it is more stated so as to alleviate the necessity to prove this economic value or avoid situations when conversation about trade secrets that could have destroyed secrecy requirements, would still be protected. Disclosing parties, however are advised to familiarize themselves with the best practices on maintaining trade secrets, including: using notice of confidentiality that should accompany disclosures, keeping trade secrets accounted and documented, if they exist in a physical format they should be stamping pages with notice, and storing them in a safe or other key protected place.

DELAWARE SPECIFICS:

In Utilisave, LLC v. Miele (Del. Ch. 2015) Court noted that carving out information ‘generally known to the public’ or obtained before the association with a company, may have reasonably preserved the recipient’s ability to compete, hence be rendered not to be not be overbroad. Hence this agreement includes it to protect its validity. Overall in situations when “confidentiality provisions begin to operate more like non-competes in an inevitable disclosure situation” the Delaware Court of Chancery set the following test for the confidentiality provision not to be overbroad or unreasonable:
1. Terms of the agreement need to be aimed at preserving recipient ability to compete reasonably (by carving exemptions i.e. public knowledge, information known before the confidentiality agreement);
2. The confidential information should not be stale;
3. Disclosing party need to show that it protects its legitimate economic interests and does not unduly burden the recipient;
4. Parties should be competing in the same geographic area.

In Martin Marietta Materials, Inc. v. Vulcan Materials Co., 68 A.3d 1208 (Del. 2012) court has used the language of the agreement pointing to the difference between whether information could have been disclosed pursuant to legal requirements triggered as a result of discretionary action or whether disclosure was only permitted in response to externally driven legal requirements such as a subpoena or other similar process as to essentially convert confidentiality agreement into standstill provision, by concluding that if disclosure was due to the voluntarily action by a recipient then it would be considered breach of the confidentiality agreement.
As a result this agreement suggests a more narrow application of the exception, where it would cover only the external requests.

3. Exceptions to confidentiality.

The term “Confidential Materials” shall not include information which is (a) already known by the Recipient without an obligation of confidentiality other than this Agreement, (b) publicly known or which becomes publicly known through no unauthorized act of the Recipient, (c) rightfully received by Recipient from a third party who is not subject to any confidentiality or fiduciary obligations with respect to such information, or (d) was requested by and is required to be disclosed pursuant to a court order, a rule or a regulation of a governmental agency or a law of the United States of America or another country, or any governmental or political subdivision thereof, so long as Recipient provides the Disclosing Party with sufficient prior notice of such requirement so as to allow the Disclosing Party an opportunity to oppose such disclosure.

4. Confidential Treatment, and Non-Use, of Confidential Materials.

Recipient agrees that, during the term of this Agreement, without the prior written consent of the Disclosing Party, Recipient will not, directly or indirectly, for its own benefit or the benefit of another, disclose or reveal to any other person, firm, venture, corporation or other business entity, or make, directly or indirectly, any commercial or other use of any of the Confidential Materials either during the course of its activities in connection with the Business Purpose or at anytime thereafter.

Recipient agrees to refrain from trading on (or otherwise using) the Confidential Materials for personal gain. Recipient agrees to use all such information solely for the purpose of evaluating the Business Purpose, and the possible transactions contemplated thereby, and to take all action necessary or appropriate to ensure that none of Recipient’s employees, officers, directors, partners, owners, or agents of Recipient disclose, reveal, or use any Confidential Materials in any manner whatsoever except on behalf of Recipient and at its direction and under its control in the course of its review as expressly authorized hereunder, and subject to strict compliance with each of the limitations and other provisions hereof.

Recipient will disclose Confidential Materials only to those high-level employees or agents directly engaged in evaluating or carrying out the Business Purpose, and the possible transactions contemplated thereby, who agree to be bound by the terms of this Agreement, and Recipient will disclose to such persons only such information as is required for them to accomplish their respective assigned task(s) with respect to each such evaluation.

5. Return of Confidential Materials.

(a) Except as Provided in Section 5(b), upon the earlier of (i) the completion of the Business Purpose, (ii) written request of the Disclosing Party or (iii) the expiration of the term of this Agreement, Recipient shall return all copies of such Confidential Materials and all derivatives thereof to the Disclosing Party or shall cause to be destroyed all copies of such Confidential Materials and all derivatives, and certify in writing to the Disclosing Party that such Confidential Materials and derivatives have been destroyed.

Recipient may return Confidential Materials, or any part thereof, to the Disclosing Party at any time. (b) Recipient shall be permitted to keep copies of Confidential Materials to the extent that (i) recipient document retention procedures, applicable accounting or tax professional standards or applicable law require retention thereof or (ii) such copies are electronic archival copies made as part of an automatic backup or disaster recovery process.

6. No Further Rights; No Warranties; No Third Party Beneficiary.

Nothing contained in this Agreement shall (i) be construed as granting or conferring any rights by license or otherwise in or to the Confidential Materials except for the use of such Confidential Materials as expressly provided herein, or (ii) grant to Recipient or any other person any right, or be construed as offering to Recipient or any other person any right, in or to the Business Purpose or any investment therein.

The Disclosing Party, or their respective directors, officers, employees, agents, or representatives make no representation or warranty as to the accuracy of completeness of any Confidential Materials, except as may be set forth in the future in any definitive written acquisition, investment or other agreement relating to the Business Purpose. This Agreement is not intended, nor shall it be construed, to create any right in or upon any person or entity not a party to this Agreement.

7. No Exclusive Discussions; Non-Circumvention.

The Parties acknowledge and agree that the provision by the Disclosing Party of Confidential Materials and/or any discussions held in connection with the Business Purpose shall not prevent the Disclosing Party from providing Confidential Materials to, and exploring Business Purpose opportunities with, third parties.

Further, Recipient acknowledges that the Disclosing Party has a unique and valuable asset in its relationships with its customers and vendors, and that the Disclosing Party would be damaged if Recipient attempted to usurp or circumvent the Business Purpose by any means or with any information whatsoever, whether gained through meetings, discussions or correspondence with representatives of the Disclosing Party, its customers and vendors, or otherwise; and agrees (i) not to have discussions regarding, or to take any action in respect of, the Business Purpose with any third party which would circumvent or impair the Disclosing Party’s ability to pursue the Business Purpose, and (ii) not to use, resource or leverage for Recipient’s benefit or for the benefit of others in connection with the Business Purpose, either directly or indirectly.

8. Expenses.

Each Party is responsible for its own costs and expenses concerning or arising from this Agreement, including expenses or losses by the Parties stemming from preparation, or as a result of this Agreement, whether incurred or future one.

9. Enforcement.

Recipient acknowledges that the Disclosing Party would suffer irreparable damage in the event of any material breach of the provisions of this Agreement. Accordingly, in such an event, the Disclosing Party will be entitled to seek preliminary and final injunctive relief, as well as any other applicable remedies at law, including reimbursement of any and all legal costs that it may have expended in connection with such breaches, against Recipient if it breaches this Agreement.

Recipient shall indemnify and hold the Disclosing Party, and their respective shareholders, directors, officers, employees, agents, and representatives ( the “Indemnified Parties”), harmless from and against any and all losses, claims, obligations, demands, assessments, penalties, liabilities, costs, damages, attorneys’ fees and expenses, asserted against or incurred by any of the Indemnified Parties arising or resulting from any breach of the provisions of this Agreement by Recipient or the unauthorized disclosure or use by Recipient’s directors, officers, employees, agents, or representatives of any of the Confidential Materials.

10. Media Releases.

All media releases and public announcements or disclosures by either party hereto which relate to this Agreement, its subject matter or the Business Purpose shall be coordinated with and approved by the other party in writing prior to the release thereof.

11. Term.

The term of this Agreement shall commence on the date hereof and end on the ______________ anniversary of the last date that Recipient receives Confidential Materials from the Disclosing Party, provided that any obligations of the confidentiality in regards to the Trade Secrets shall survive the agreement for the length of its economic usefulness.

12. Miscellaneous.

(a) Any notices required by this Agreement shall be given in hand and receipted, or sent by express courier service, delivery receipt required, to the applicable address set forth below. Either party may from time to time specify as its address for purposes of the Agreement any other address upon the giving of ten days written notice thereof to the other party:

In the case of Disclosing Party:

[Disclosing Party.StreetAddress][Disclosing Party.City][Disclosing Party.State][Disclosing Party.PostalCode]

e-mail: [Disclosing Party.Email]

Attn: __________________________________

In the case of the Recipient:

[Recipient.StreetAddress][Recipient.City][Recipient.State][Recipient.PostalCode]

e-mail:[Recipient.Email]

Attn: __________________________________

(b) The Parties agree that this Agreement (i) is the complete and exclusive statement between the parties with respect to the subject matter hereof, except to the extent that this Agreement makes reference to other agreements (ii) supersedes all related discussions and other communications between the parties related to the subject matter hereof, (iii) only be modified in writing by the authorized representatives of the parties, (iv) shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its conflict of laws provisions or your actual state or country of residence, and (v) any claims, legal proceeding or litigation arising out of this Agreement should be brought solely in the Delaware Court of Chancery, and you consent to the jurisdiction of such court.

In a recent decision Ascension Ins. Holdings, LLC v. Underwood (Del. Ch. 2015) and later reaffirmed in Focus Financial Partners, LLC v. Holsopple, 241 A.3d 784 (Del. Ch. 2020) Delaware Chancery court noted that “Delaware law respects the parties’ right to freedom of contract, including with respect to reasonable covenants not to compete. Delaware also follows the Restatement (Second) of Conflict of Laws (the “Restatement”), under which the parties’ choice of law will generally control an agreement. The Restatement recognizes an exception to that general principle,… that allowing parties to circumvent state policy-based contractual prohibitions through the promiscuous use of such provisions would eliminate the right of the default state to have control over enforceability of contracts concerning its citizens.” thus impermissible. Hence, if you are using Delaware law to avoid your state law prohibitions, there is a big chance that it may not work, even though his agreement is trying to compensate for it by providing the following verbiage: “without giving effect to its conflict of laws provisions or your actual state or country of residence”.

(c) The undersigned officers, representatives or partners of the Parties represent and warrant that they have full power and authority to execute and deliver this Agreement on behalf of their respective entities, and that this Agreement is valid and enforceable in accordance with its terms.

(d) A waiver by any party hereto of any particular breach of default in connection with any provision of this Agreement shall not be deemed as a waiver of any subsequent default or breach of that same or any other provision of this Agreement.

(e) If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws, such provision shall be severable and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance.

IN WITNESS WHEREOF, Recipient and the Disclosing Party have each caused this Agreement to be signed and delivered all as of the date first above set forth.

[Disclosing Party.FirstName][Disclosing Party.LastName][Disclosing Party.Company]

[Recipient.FirstName][Recipient.LastName][Recipient.Company]

Signature

MM / DD / YYYY

Signature

MM / DD / YYYY

Useful resources

FAQ

Title 6 – Chapter 20. Trade Secrets of the Delaware Code – provides protection for actual or threatened misappropriation of trade secrets, however would arguably not protect from a voluntary disclosure from an authorized person. Moreover not all confidential information that company wants to protect rises to the level of a trade secret that is defined as information, including a formula, pattern, compilation, program, device, method, technique or process, that:

derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

NOTE: Confidential information and trade secrets are distinguished from each other in terms of duration the protection can be granted by court. The latter usually has an indefinite period of confidentiality if it continues to protect legitimate economic interests and does not unduly burden the other side.

Delaware is a reformation state – meaning that the court can take upon itself to re-write the provision in question for consistency with the parties’ intent and compliance with state laws, rather than to hold the entire agreement unenforceable.

Title 6 – Chapter 20. Trade Secrets of the Delaware Code provides for an injunction relief to prevent or stop dissemination of the trade secrets and damages that may include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation. Injunction may be continued for a reasonable period of time, even if trade secrets cease to exist, in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.

NOTE: Statute of Limitations provides that an action for misappropriation must be brought within 3 years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.

What is Non-Dislcosure Agreement or NDA?

It is a legally binding agreement where one party (or both of them) provides the other with some sensitive information that this party will keep confidential and will not share or make available to any others. So in the case this information got leaked, then the injured party may stop the breaching party from continuing to disclose this information and/or seek damages for breach of contract.

The NDA can also be called a confidentiality agreement (CA) or confidential disclosure agreement (CDA).

What is NDA used for?

The most common situations may include:

seeking a prospective investors and/or vendors/suppliers;
sharing confidential information, including trade secrets, proprietary processes, client information and lists, marketing strategies, and any other valuable or sensitive information with an employee for the purpose of his/her employment or a contractor for a specific work or project;
collaboration of scientists on specific patent or invention; or
other situations where you would like to keep certain information confidential.

NOTE:

Purpose for which parties entering agreement can not be something illegal or violating public policy (i.e. to commit a crime or to stop a person from his legal duty to report or disclose certain information);
Purpose can also fulfill a “consideration” or “bargained for” requirement for the contract to be enforceable. Consideration can be either in a form of benefit to the promisor or detriment to the promisee and need not be monetary. Simply put you can not just shout out confidential information and later force people to sign NDA not to disclose it. They should be either seeking that information (in this case information is the benefit that the promisor gets) or be compensated for keeping it confidential, like in the case of the continued employment.
Purpose is also an important limiting factor on how the information should be used and crucial in protecting the interest of the disclosing party.

DELAWARE SPECIFICS: In Martin Marietta Materials, Inc. v. Vulcan Materials Co., 68 A.3d 1208 (Del. 2012) court has enjoined Martin Marietta Materials from a hostile takeover bid due to the fact that it was not covered in the use restriction part that limited production of the information to negotiating friendly business combination.

Employers will typically complement NDA with Non-compete agreement in order not only preserve confidentiality of the shared information but also prevent former employees from working on the competitor or setting up a competing business of their own.