Dinn, Hochman & Potter, LLC

Ohio businesses, be careful with non-disclosure agreements

Many businesses routinely use confidentiality agreements and non-disclosure agreements to protect intellectual property. Depending on the circumstances, though, such agreements may prove to be ineffective, as demonstrated by a recent federal district court case. After signing a confidentiality and non-disclosure covenant, a recipient of confidential information created and sold a product similar to the one created by the disclosing party. After terminating the relationship a few months later, the recipient continued to sell the product, which resulted in the business litigation.

The product's creator sued to protect its IP, but the court rejected its arguments for several reasons. The creator asserted that it disclosed information because the recipient was a partner. However, the disclosure was made prior to forming a partnership. The creator also was not able to convince the court that it had made reasonable efforts to keep its design files secret, since it did not have confidentiality or non-disclosure agreements with the designer or manufacturer of its product.

The court dismissed allegations that the recipient breached its fiduciary duty as a partner because of language contained in draft documents used in negotiations. It also dismissed allegations of breach of contract related to keeping the information confidential since the disclosing party had not taken appropriate measures to keep it confidential in the first place.

This case points out how important it is to make sure that confidentiality and non-disclosure agreements are well crafted and used properly. The disclosing party must actually own the IP and enter into agreements to protect it each step of the way. Relationships and partnerships must be clearly defined prior to and after the disclosure of information. An attorney with experience in protecting intellectual property may be helpful in drafting and negotiating agreements.

Source: The Huffington Post, "Non-Disclosure Agreements May Not Protect Intellectual Property", Brad Reid, March 24, 2014

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