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Law in the Marketplace: Confidential information vs. trade secrets – what’s the difference?

For the Monitor
Published: 9/11/2021 9:58:31 AM

Many business lawyers have forms for non-disclosure agreements (often called “NDAs”), and many of these lawyers receive requests from time to time from their clients to draft NDAs between their clients and third parties. Some of these NDAs are one-way agreements — i.e., one party is only a discloser and the other is only a recipient. But some of them are two-way agreements — i.e., both parties are both disclosers and recipients.

Personally, I’m not a huge fan of using NDAs when my clients are the disclosers, since it’s often so easy for recipients to breach them without being caught. If you’re a New Hampshire business owner and you’re thinking about disclosing information to one or more third parties that you want them to keep secret, a key issue you should think about is whether you can trust the recipients. If you’re not sure you can, don’t make the disclosure unless you absolutely have to in order to do a deal. Yes, have the recipients sign an NDA; but don’t kid yourself that it will work.

However, if you decide to make the disclosure, you should be aware of the difference between information that qualifies as a trade secret under New Hampshire law and information that is merely confidential and not a trade secret. One reason why it’s important for you to know the difference between these two types of information is that if you enter into an NDA as the disclosing party with a recipient, if the NDA only covers trade secrets, and if the information you’re disclosing consists of information that you want to keep secret but that is not, technically, a trade secret under New Hampshire law, you may find that if the recipient discloses the information and you sue him or her, you’ll lose your suit.

So, what is a trade secret and what isn’t? Information qualifies as a trade secret under New Hampshire law only if it meets all three of the following tests:

1. It is information in your possession that is not commonly known by the public;

2. It is actually or potentially of economic value to you because it is not known or legally ascertainable by other persons who can obtain economic value from it; and

3. You’ve made and are continuing to make reasonable efforts to keep it secret.

Thus, for example, if, under an NDA, you disclose information to third parties that you want to keep secret but the recipients can’t obtain economic value from it, the information won’t be protected under the NDA if, by its terms, the NDA only covers trade secrets as such.

Likewise, if you disclose information to third parties under an NDA that you want to keep secret (for example, because the disclosure of the information might be embarrassing to you or to your company), but you can’t prove the information is economically valuable to you, in this situation, too, your NDA may be worthless.

What does all this mean in practice? It means, among other things, that if you’re thinking about disclosing confidential information to a recipient under an NDA with the help of a lawyer:

-- You should describe very carefully to the lawyer each of the various items of information you want to protect; and.

-- You should make sure that the terms of the NDA form that your lawyer plans to use for you protects each of those types of information expressly.

If it doesn’t, make sure your lawyer amends it to do so.

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