A non-disclosure agreement (NDA) generally provides that confidential information can’t be shared with third parties or used for any purpose other than the ones stated in the agreement. These agreements sometimes seem like a hassle to get in place prior to business meetings where sensitive information will be shared, but protection provided can provide an avenue for relief if your proprietary trade secrets are misappropriated and used without consent.
An unfortunate reality is that some businesses dangle the possibility of a deal as a pretext to uncovering information about competitors and their products. Standard NDA’s can be an effective tool to combating this risk and unethical practice. A recent case in the news shows the power of an NDA.
Olaplex signed an NDA with L’Oréal USA prior to disclosing proprietary technology in a business meeting about potential licensing and acquisition of the company or its technology assets. The meeting did not lead to a deal and shortly thereafter, L’Oréal introduced several knock-off versions of the Olaplex products.
In January 2017, Olaplex filed a trade secret misappropriations lawsuit against L’Oreal (Liqwd Inc. v. L’Oreal USA Inc., 1:17-cv-00014 (D. Del.)). Olaplex won round one of its trade secret misappropriation case in a jury trial in August 2019. The jury found L’Oreal willingly violated the the NDA and awarded Olaplex $50 million for trade secret misappropriation, patent infringement, and breach of contract claims. L’Oreal is planning to appeal.
The successful enforcement of an NDA depends on how well the proprietary information subject to protection is described in the document. While the tendency is to use broad language, it is a better practice to be detailed and specific about the subject matter content. All the sensitive information discussed must be marked “confidential” or oral disclosures need to be memorialized in a summary e-mail or memo identifying the content of discussions as confidential subject matter. NDAs should also explicitly state the term or duration of the agreement and the consequences/remedies of a breach.
Preparing an ironclad NDA can prevent lost sales and legal fees. Additionally, it is a good way to gauge interest from potential business partners while still protecting your confidential information. Meet with your lawyer to discuss what can and cannot be included in an NDA.
Tracy Jong is among the 5% of U.S. attorneys who are also registered patent attorneys. She is an entrepreneur above all, living the issues and challenges of small businesses every day. She owns Tracy Jong Law Firm. She understands the issues and challenges of technology start-ups as a principal in two promising start-up ventures, OSCR and Zero Valent Nano Metals. Her favorite trademark and branding work focuses on the craft beverage industry, especially incorporating advanced protection strategies such as design patent and trade dress. She provides business strategy consulting, is a regular speaker to industry groups, and has authored a book on New York liquor law for retailers. For more than a decade, she has taught lawyers, professional engineers and architects through her CLE and PDH courses. She has been published in Buffalo Intellectual Property Law Journal and has published articles in several industry publications. Visit her website at www.TracyJongLawFirm.com.