Key Takeaways:

  • Direct damages for breach of confidentiality focus on measurable and foreseeable losses resulting directly from the breach, distinguishing them from indirect or consequential damages.

  • Including clear definitions of confidential information, exclusions, and residuals clauses in an NDA is essential to mitigate risks.

  • Limiting or disclaiming liability through consequential damages exclusions and waivers of injunctive relief are common strategies in NDAs.

  • The legal interpretations and enforceability of NDAs can vary significantly by jurisdiction, emphasizing the need for tailored agreements.

  • Effective enforcement and remedies for breaches often rely on a combination of injunctive relief, monetary damages, and sometimes arbitration clauses.

Knowing about direct damages for breach of confidentiality is vital when you enter into business or business discussions with another party. If both parties are disclosing confidential information, then you will need to create a mutual confidentiality agreement. If only one person is, then you will want to create a unilateral NDA.

When creating a nondisclosure agreement, it is important to always label these documents as confidential, so there is no confusion as to whether the information contained in them is privileged or not.

If the confidential information is shared through a verbal communication, such as through meetings, then the party that is disclosing the information will need to provide some sort of written notification letting the receiving parties know that the information is to remain confidential.

You need to make sure that you do not label all documents confidential as it can lead to pitfalls and problems protecting information that is truly important. The NDA needs to be formatted to cover specific information, and that information should be discussed right after signing, so the receiving party is fully aware of what information needs to remain confidential.

While an NDA places restrictions on the receiving party's ability to disclose the information, it should also include restrictions against the receiving party using that information as well.

NDA Definitions and Standard exclusions

The NDA should include what exactly constitutes the confidential information and any prior disclosures that need to be made before it is signed. You should also be sure to name standard exclusions on what does not constitute confidential information. These exclusions include:

  • Information that is received from a third party that allows the information to be disclosed.
  • Information that was developed independently of the information contained in the confidentiality agreement.
  • Information that the receiving party already knew before the time of disclosure.
  • Information that is publicly available without breaching the agreement by the receiving party.
  • Consent from the disclosing party that allows the receiver to disclose certain information.
  • Information that is required by law to be disclosed by the receiving party.

Residuals Clause

Residuals clauses make an exception to the definition of confidential information for information that would be considered retained on a person's memory. This can be considered an aggressive position for the receiving party and is often viewed with scrutiny by the disclosing party. This would allow the NDA to be tailored by requiring destruction of all the notes and summaries that the receiving party has made.

Jurisdictional Differences in Defining Confidentiality

The definition and enforceability of confidentiality agreements can vary widely across jurisdictions. For instance, U.S. courts often differentiate direct damages from consequential damages more explicitly than in some European jurisdictions, where broader interpretations are common. Businesses operating internationally should include jurisdiction-specific provisions in their NDAs to account for these differences. Choosing a governing law clause can also provide clarity on how confidentiality breaches will be adjudicated.

Disclaimer of Consequential Damages

In a disclaimer of consequential damages, parties will include language that disclaims consequential damages if a breach of the NDA occurs. This disclaimer is not often accepted by the disclosing party as the damages they are most likely to seek in a breach of NDA is consequential damage. This would leave the disclosing party with little recourse if a breach happens.

Calculating Direct Damages for Breach of Confidentiality

Direct damages in the context of confidentiality breaches often include:

  • Loss of Revenue: Direct loss of earnings due to unauthorized disclosure.

  • Costs of Remediation: Expenses incurred to mitigate the impact of the breach, such as security upgrades.

  • Legal Fees: Costs associated with pursuing litigation or arbitration to enforce the agreement.

To ensure these damages are recoverable, NDAs should clearly define the types of damages that qualify as direct and exclude ambiguous terms. Expert valuation is often required to substantiate these claims in legal proceedings.

Term

You should carefully consider the term you set for the NDA and the length of time that it can restrict the disclosure of the confidential information. If the confidential information constitutes a trade secret, you need to include specific languages as to the fact that expiration does not apply to trade secrets.

Importance of Trade Secret Protection

While NDAs are temporary by nature, trade secrets are protected indefinitely under law, provided they remain secret. To distinguish between general confidential information and trade secrets, NDAs should include specific language clarifying their treatment. Protecting trade secrets often involves additional measures such as limiting access, requiring separate agreements, and enforcing strict record-keeping policies.

Waivers of Injunctive Relief

When an NDA is breached, the most common defense is obtaining a permanent or even temporary injunction by the court. This will prohibit the receiving party from, disclosing any of the confidential information at least temporarily until the court case and be resolved. Often, filing a suit for monetary damages is not enough and an injunctive relief is your primary protection.

Arbitration vs. Litigation in Confidentiality Breaches

Many businesses prefer arbitration over litigation for resolving NDA breaches, as arbitration is often quicker and more private. Including an arbitration clause in your NDA can help maintain confidentiality throughout the dispute resolution process. Arbitration also allows the parties to select arbitrators with specific expertise in trade secrets or contractual disputes, enhancing the resolution's effectiveness.

Imitations of Liability

Some NDAs will come with limitations of liability clause which states that you cannot seek:

  • Indirect
  • Consequential
  • Special
  • Exemplary
  • Punitive damages

If such limitations were agreed to, it is more difficult to recover damages for a breach of confidentiality.

Non-Solicitation or Non-Competition Provisions

Typically, NDAs are entered into before a business relationship has commenced. Because of this, a non-solicitation or noncompetition provision may not make sense. But if you plan on divulging business strategies for future business dealings, you may want to include these in the terms.

Emerging Trends in Confidentiality Agreements

With the rise of remote work and global collaborations, confidentiality agreements are evolving. Key trends include:

  • Cybersecurity Provisions: Explicit clauses covering digital information sharing.

  • AI-Generated Content: Addressing ownership and confidentiality of AI-created outputs.

  • Cross-Border NDAs: Enhanced clauses for compliance with GDPR, HIPAA, and other regulations.

Companies must update their NDAs regularly to address these emerging risks and opportunities.

FAQ Section

What are direct damages for breach of confidentiality?

Direct damages refer to foreseeable and measurable losses directly caused by the breach, such as lost revenue or the cost of mitigating the breach.

How do residuals clauses impact confidentiality agreements?

Residuals clauses allow the receiving party to retain information stored in their memory, which can be contentious but is sometimes necessary in tech-heavy industries.

Can trade secrets be included in NDAs?

Yes, NDAs often include trade secrets, but they require special provisions for indefinite protection and stricter enforcement measures.

Why include jurisdiction-specific clauses in NDAs?

Jurisdiction-specific clauses ensure that the NDA aligns with local laws, providing clearer enforceability and predictable outcomes in case of disputes.

Is arbitration better than litigation for NDA breaches?

Arbitration is often preferred for confidentiality disputes due to its private nature, faster resolution, and expertise of arbitrators in specialized areas like trade secrets.

If you need help with direct damages for breach of confidentiality of company, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.