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The Duration Clause And Non-Disclosure Agreements (NDAs)

by Vinay Jain

In this post, we share some of the legal research behind our forms. Please note that refining these forms is an ongoing process informed by continuous research as well as possible changes in the law. As a result, the language we reference below may differ from what’s currently in use on the app.

Shake’s non-disclosure agreement form (“NDA”) contains the following clause, addressing the duration of the agreement and the confidentiality obligations it creates:

This agreement applies to confidential information either party discloses to the other within 1 year of this agreement’s signing. After that, for an additional 1 year, each party must continue to protect, from unauthorized use or disclosure, confidential information that was disclosed during the first year. However, the parties’ obligation to protect trade secrets is perpetual.

The above language provides that the agreement has a one year duration with respect to the disclosure of new information. Because the NDA is limited in scope to the exploratory phase of a business relationship, the one-year time frame is intended to be sufficient to allow both parties the time they need to undertake such exploration.

For one additional year, the parties must continue to protect the confidentiality of the information they exchanged in the first year.  Providing a finite, reasonable duration for the non-disclosure obligation can be important for reasons of legal enforceability. NDAs, along with non-compete and non-solicit clauses, are restrictive covenants — agreements that have the potential to limit the freedom to practice one’s occupation. Accordingly, their scope may be subject to scrutiny by some courts on public policy grounds as unfair restraints on trade. 1 Limiting the duration of the confidentiality obligation to a specific length – one that is reasonable given the type of information being exchanged – can aid the enforceability of an NDA, particularly in jurisdictions that more strongly disfavor restrictive covenants. 2

Trade secrets are a subset of the confidential information that parties to an NDA will want to protect. The Uniform Trade Secret Act (UTSA), adopted by virtually every state, defines a trade secret as information that derives independent economic value from its secrecy and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. 3 By law, trade secrets are potentially protected indefinitely, without any need for an NDA. In order to avoid the possibility of the Shake NDA’s finite duration preemptively limiting the duration of trade secret protection, the above language explicitly states that the obligation to protect a trade secret is perpetual. 4

  1. See Chris Montville, Reforming the Law of Proprietary Information, 56 Duke L.J. 1159, 1180 (2007). Available at http://scholarship.law.duke.edu/dlj/vol56/iss4/4/
  2. Id. at 1180-1181.
  3. Unif. Trade Secrets Act § 1(4) (1985). Available at http://www.uniformlaws.org/shared/docs/trade%20secrets/utsa_final_85.pdf
  4. See generally, Julianne Hartzell, Time Limits in Confidentiality Agreements, 20 Intellectual Prop. Litig. 1, 17-19 (Spring 2009). Available at http://www.marshallip.com/media/pnc/7/media.7.pdf
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Vinay Jain

As Chief Legal Officer, Vinay serves as Shake's general counsel, is responsible for the company's legal contracts and content, and leads efforts to educate consumers and small businesses about the law.

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