CHAPTER 8 CONFIDENTIALITY AND NONDISCLOSURE AGREEMENTS
| Jurisdiction | United States |
(Mar 2010)
CONFIDENTIALITY AND NONDISCLOSURE AGREEMENTS
Holme, Roberts & Owen LLP
Denver, Colorado
Lynn P. Hendrix is a partner in the Denver law firm of Holme Roberts & Owen LLP. His practice emphasizes energy and natural resource law and intellectual property law. Lynn graduated from the University of Nebraska in 1973 with a Bachelor of Science Degree in Electrical Engineering, and graduated with distinction from the University of Nebraska College of Law in 1978. During law school he served first as Executive Editor and later as Editor-In-Chief of the Nebraska Law Review. Lynn is a former President of the Rocky Mountain Mineral Law Foundation (RMMLF) and is a member of several RMMLF committees. Lynn has authored or co-authored four papers presented at the RMMLF's Annual Institutes, and nine papers presented at the RMMLF's Special Institutes. Lynn served as Program Chair of the RMMLF's 45th Annual Institute, and Landmen's Chair of the RMMLF's 43rd Annual Institute. Lynn has also presented to the Annual Institute on Oil and Gas Law and Taxation and the Annual Institute on Intellectual Property Law both sponsored by the Center for American and International Law (formerly Southwest Legal Foundation), and the Eugene Kuntz Conference on Natural Resources Law & Policy sponsored by the University of Oklahoma College of Law. Lynn is past Chair of the Natural Resources and Energy Law Section of the Colorado Bar Association, and served as Chair of the Oil and Natural Gas Exploration and Production Committee of the American Bar Association. Lynn has been listed in Best Lawyers in America for over 10 years, with such listing in various years including the areas of Energy Law, Natural Resources Law, Oil & Gas Law, Native American Law, Intellectual Property Law and Information Technology Law. He is also listed in Colorado Super Lawyers, and was named by Lawdragon as one of the 500 Best Lawyers in America. Lynn is also active in many intellectual property law organizations, including the American Intellectual Property Law Association (Committee on Electronic and Computer Law and Committee on Licensing), ABA Section of Intellectual Property Law (Chair of Special Committee on UCITA), International Technology Law Association, Licensing Executives Society, and the International Trademark Association. Lynn served as ABA Advisor to the National Conference of Commissioners on Uniform State Laws committee that drafted the Uniform Computer Information Transactions Act, also known as UCITA (f/k/a Article 2B of the Uniform Commercial Code). Lynn is licensed in the States of Colorado, Montana, Nebraska, New York, and Wyoming and with the U.S. Supreme Court, and is a registered patent attorney with the United States Patent and Trademark Office. He is a member of the American, Colorado, Montana, Nebraska, New York, and Wyoming Bar Associations. He is also a member of the American Association of Professional Landmen and the Denver Association of Petroleum Landmen.
TABLE OF CONTENTS
I. Introduction
II. Contract Right or Property Interest
III. Trade Secrets
A. Basic Attributes of Trade Secrets
B. Creation and Protection of Trade Secrets
C. Ownership and Transfer of Trade Secrets
D. Infringement of Trade Secrets
E. Remedies Under the UTSA
F. Additional UTSA Provisions
G. Trade Secrets in the Oil and Gas Industry
IV. Confidentiality and Nondisclosure Agreements
A. Scope of Confidentiality and Nondisclosure Agreements
1. Definition of Confidential Information
2. Use and Disclosure Restrictions
3. Parties Entitled to Enforce Agreement
B. Key Concerns With Confidentiality and Nondisclosure Agreements
1. Preservation of Trade Secret Protection
2. Ownership of Intellectual Property Rights
3. Disclaimer of Representations and Warranties
4. Authority
5. Procedural Controls on Disclosure and Distribution of Confidential Information
6. No Obligation to Enter Into Other Agreements
7. Nonsolicitation of Employees
8. Standstill
9. Governing Law and Choice of Jurisdiction and Venue
10. Severability and Reformation
C. Problematic Provisions Under Confidentiality and Nondisclosure Agreements
1. Term
2. Alternative Dispute Resolution
3. Area of Mutual Interest
4. Integration Clause
V. Forms Currently in Use
VI. Conclusion
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Appendices
A. Uniform Trade Secrets Act
B. Current Forms
1. Rocky Mountain Mineral Law Foundation
2. American Association of Professional Landmen
3. Association of Independent Petroleum Negotiators
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Confidentiality and Nondisclosure Agreements: A Practical Guide1
I. Introduction.
Confidential and proprietary information and data ("confidential information") can be an oil and gas company's most valuable asset. Processes, procedures, methods, information and data can all be confidential and proprietary and subject to protection under applicable trade secret law. During the exploration phase, parties invariably disclose to other parties confidential information relating to the exploration project. Often such disclosure is pursuant to one of the many types of exploration agreements used in the oil and gas industry. But even more often such disclosure is made prior to entering into the applicable exploration agreement in an effort to entice another party to join in the project.
Confidential information can be owned, or it can be licensed. Licensing is the procedure by which the owner of property allows another party to use the property to a limited extent. A confidentiality and nondisclosure agreement ("CNDA") is a type of license that allows one party to use and disclose certain information of another party to the extent authorized in the CNDA. CNDAs are contracts between parties and, to a great extent, are governed by general state contract law; but CNDAs are also subject to the overlay of the laws establishing the different types of intellectual property, particularly trade secret law. Trade secrets are classified as intangible personal property and are a type of intellectual property. Like other property, trade secrets can be possessed, owned, used, licensed and transferred. CNDAs can place a variety of restrictions on the use and disclosure of information and data. Restrictions can be placed on where, when, for how long, how and by whom the information and data can be used or disclosed.
This paper addresses the laws of the United States. Unlike the United States, some foreign countries do not recognize trade secrets as a property interest. Foreign counsel should always be consulted when dealing with confidential information in foreign jurisdictions.
II. Contract Right or Property Interest.
Confidential information can be protected as a property interest under applicable trade secret law, contractually through the use of CNDAs or through a combination thereof. Far too often parties enter into CNDAs without an understanding of applicable trade secret law, and how that law and the parties rights and obligations thereunder are modified by the CNDA. It is important that parties understand that confidential information is a protectable property interest. Parties need to be aware of the interrelation between applicable trade secret law and the contractual rights established by CNDAs. CNDAs can expand, limit or otherwise affect the rights, duties and obligations provided or imposed by applicable trade secret law.
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III. Trade Secrets.2
A. Basic Attributes of Trade Secrets.
Every oil and gas company has trade secrets in one form or another. Know-how, processes, procedures, information and data can all constitute trade secrets. Specifically, a "trade secret" consists of information, including a formula, pattern, compilation, program, device, method, technique or process that (i) 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 (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.3 Generally, this means that any know-how, process, procedure, information or data can be a trade secret provided it (a) is not generally known and not readily ascertainable, (b) has independent economic value and (c) is subject to reasonable efforts to maintain secrecy.
Trade secrets arise as a property interest under state law pursuant to the Uniform Trade Secrets Act ("UTSA"),4 Section 757 of the Restatement of Torts,5 or Sections 39-45 of the Restatement (Third) of Unfair Competition.6 The UTSA has been adopted in 46 states, the District of Columbia and the U.S. Virgin Islands.7 Those states that have not adopted the
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UTSA generally follow the Restatement. In addition, several states have specific criminal statutes covering the theft of trade secrets.8
B. Creation and Protection of Trade Secrets.
Trade secrets arise as a matter of law if secrecy is maintained, and appropriate steps must be taken to ensure that employees, business partners and potential business partners with access to trade secrets maintain the secrecy thereof. CNDAs, or the lack thereof, can expand or limit the protection otherwise provided by trade secret law. Because applicable trade secret law requires reasonable steps to maintain confidentiality, the failure to enter into a CNDA, a poorly drafted CNDA, or the failure to follow a well-drafted CNDA, may terminate the protection provided under trade secret law. If the parties are unable to agree upon a formal CNDA, ensuring that the party receiving information knows and acknowledges the confidential and proprietary nature thereof and its obligation to maintain confidentiality may be adequate to maintain protection under applicable trade secret law. Anything short of a written CNDA however, may...
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