Many companies rely on boilerplate confidentiality provisions to protect their trade secrets and other sensitive business information. These provisions, known as non-disclosure agreements or NDAs, regularly appear in due diligence agreements, as well as agreements with employees, customers, and suppliers.
Yet recent state and federal court decisions in Illinois suggest that boilerplate NDAs are becoming harder to enforce. Courts have taken issue with these two boilerplate NDA provisions:
- Provisions covering “all information regarding a company’s business.” Non-disclosure agreements often stretch to encompass “all information” regarding a company’s business. But such language was recently rejected as overly broad and unenforceable, despite being coupled with a carve-out provision excluding information generally known to the company’s competitors.
- Provisions lacking geographic and time limits. Companies often find it difficult to assign geographic boundaries and time limits to their non-disclosure provisions. After all, what protection does a company really have if its employees may not disclose confidential information in the company’s home state but remain free to do so once across the border? And some confidential information remains fresh and relevant indefinitely. Nonetheless, recent Illinois federal court opinions suggest that at least some judges will be looking for geographic and/or time limits when considering the enforceability of NDAs.
If your form NDAs contain these provisions, and your business is subject to Illinois law (or the law of another state taking this approach), here are six possible steps to consider:
- Do not define the company’s confidential information to be “any and all information” regarding its business, without further elaboration. Instead, provide more specificity, e.g., by listing specific types or categories of confidential information.
- Inventory the types of confidential information to be protected by non-disclosure contract and consider whether a time limit might be added. Do this by determining how long the confidential information is likely to remain useful.
- If there is no single time limit that makes sense for all categories of confidential information, consider assigning different time limits to different categories of information.
- Another approach to consider is to bifurcate the non-disclosure agreement, e.g., create a two-level contract that defines both “confidential information” and “trade secrets,” but provides a time limit only for the former.
- Where non-disclosure undertakings are made in connection with the sale of a business, make that clear in the agreement so as to benefit from the relaxed enforcement standards often applied to covenants that are part of such a sale.
- Design an effective information protection program to increase the chances that the confidentiality provisions will never need enforcement.
While the optimal approach and language will vary from one company to the next, reviewing your confidentiality provisions now is an important step toward protecting your company’s information should it be compromised.