How to Keep Secrets: Using Non-Disclosure Agreements Daniel P. Hart April 17, 2013
Mission of Pro Bono Partnership of Atlanta: To maximize the impact of pro bono engagement by connecting a network of attorneys with nonprofits in need of free business legal services. 2
Pro Bono Partnership of Atlanta Eligibility & Other Information In order to be a client of Pro Bono Partnership of Atlanta, an organization must: Be a 501(c)(3) nonprofit organization. Be located in or serve the greater Atlanta area. Serve low-income or disadvantaged individuals. Be unable to afford legal services. Visit us on the web at www.pbpatl.org Host free monthly webinars on legal topics for nonprofits To view upcoming webinars or workshops, visit the Workshops Page on our website 3
Case Study 1: The Ex-Employee Job Squad, Inc. v. Champion Industries, Inc. , No. 08-C-1123 (Kanawha County, W. Va. Circuit Court) Non-profit organization operated commercial mail-sorting operation in which it employed individuals with disabilities; Employee who had managed mail-sorting operation went to work for large for-profit company that competed with non-profit in commercial mail-sorting business and major customer followed; Non-profit sued competitor and ex-employee, alleging that competitor paid ex-employee to steal confidential information (customer lists and files, employee performance and salary info, financial and cost structure data, etc.) 4
Case Study 2: The Disgruntled Vendor Fund Raising, Inc. v. Alaskans for Clean Water, Inc., et al., No. 2:09- CV-04106 (C. D. Cal.) Group of non-profit environmental organizations hired fund- raising organization to help raise funds to support ballot measure to impose new environmental regulations on large mines; Non-profits allege that, after they fired the fund-raiser, fund-raiser contacted attorneys representing large mining partnership that opposed referendum and sold various confidential documents belonging to the non-profits, including donor lists, bank account information, and contact lists; Arbitrator awarded over $3 million to non-profits; court upheld. 5
Case Study 3: The Critic Art of Living Foundation v. Does 1-10, No. 5:10-cv-05022-LHK (N.D. Cal.) Plaintiff in case is religious non-profit organization that has method of teaching yoga that it regards as proprietary; Organization brought suit against two bloggers who were former adherents of the organization’s teachings but who are now critics of the organization and its teachings; Organization alleges that bloggers misappropriated trade secrets by revealing yoga techniques on blog posts; Federal court denied motion to dismiss brought by bloggers, finding that organization had raised colorable claim. 6
Why Have Non-Disclosure Agreements? Any time that your organization needs to protect information: Employees and contractors; Vendors; Partners; Beneficiaries. 7
Benefits of NDAs Provide legal protection for confidential information that is not a “trade secret”: Unless the information is a trade secret, if no NDA exists, there is generally no legal claim for misappropriation of confidential information; Can provide psychological deterrent to misappropriation of confidential information; Can provide basis for showing in lawsuit that organization takes reasonable measures to protect information. 8
Requirements for Valid NDAs Offer and acceptance “meeting of the minds”; Consideration (value given in exchange for something else); Must protect information that is truly “confidential” May need reasonable time period . 9
Potential Downsides of NDAs NDAs are not a panacea: Not all information is truly confidential; Existence of NDA does not guarantee compliance; Enforcement is difficult: Litigation is expensive; Proof is difficult; Damages are limited. 10
Potential Downsides of NDAs If handled improperly, NDAs can be a deterrent to exchange of information when free exchange of information is desirable. 11
Common Mistakes in Using NDAs Don’t use “take or leave” approach: Negotiation is good! Don’t draft yourself: Call a PBPA lawyer. Don’t forget about the NDA once you have it: Document discussions with other party and all confidential information disclosed pursuant to NDA; Retain signed copy of NDA; Insist on return of information when relationship ends. 12
Other Practical Tips in Addition to NDAs Take appropriate steps to protect trade secrets and confidential information: Store hard copies of sensitive documents in locked closets or drawers; Limit access to confidential information to employees with business need for access; Encrypt data; Provide password protection on documents; Limit ability to print or copy sensitive documents; Consider limiting ability of employees to access sensitive documents remotely. 13
Other Practical Tips in Addition to NDAs Ensure that departing employees’ access to secured servers, e-mail, etc. is deactivated immediately upon their termination. Ensure that departing employees have returned files and documents and all organization-issued computers, devices, etc. 14
Other Practical Tips in Addition to NDAs Ensure that vendors or other partners return confidential information at end of relationship. Consider conducting forensics analyses on returned computers/ devices. Consider using other restrictive covenants (non- compete, customer non-solicits, employee non- solicits) where appropriate (BUT consult with a PBPA attorney first). 15
For More Information: If you would like more information about the services of Pro Bono Partnership of Atlanta, contact us at: Phone: 404-407-5088 Fax: 404-853-8806 Info@pbpatl.org www.pbpatl.org 16
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