Corporate & Securities Law

?Proprietary?

By Ken Adams

This from reader Chris Lemens:

This bugs me. I see a lot of nondisclosure agreements. A typical definition of the information protected by such an agreement includes a notion that the information is “confidential or proprietary.” The “proprietary” part just seems wrong to me. So what if the information is owned as property? A company’s website is owned as property, but it shouldn’t be protected as “confidential information” under a nondisclosure agreement.

What do you think?

Black’s Law Dictionary defines proprietary as meaning “1. Of or relating to a proprietor {the licensee’s proprietary rights}. 2. Of, relating to, or holding as property {the software designer sought to protect its proprietary data}.”

I see it used three different ways in a definition of Confidential Information. First, it’s used on its own, without confidential:

As defined herein, “Confidential Information” means information or material proprietary to either party, whether written or oral, tangible or intangible, relating, but not limited to, the parties’ business and products.

Second, it’s used in definitions that encompass confidential information or proprietary information:

Confidential Information ” means information, whether or not originated by the Employee, that relates to the business or affairs of the Company, its affiliates, clients or suppliers and is confidential or proprietary to, about or created by the Company, its affiliates, clients, or suppliers.

With respect to these two uses, I agree with Chris?why should all information, whether confidential or not, constitute confidential information for purposes of an NDA?

Third, you have those definitions that encompass information that is confidential and proprietary:

“Confidential Information” means information delivered to any Purchaser by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to any of the Loan Documents that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by such Purchaser as being confidential information of the Company or such Subsidiary … .

Rather than being overbroad, this approach might be too narrow. A disclosing party could conceivably disclose information that isn’t proprietary but is nevertheless information that it would want to keep confidential, for example information that had been disclosed to it under an NDA.

So my default mode would be to omit proprietary from a definition of Confidential Information.

Full post as published by AdamsDrafting on February 03, 2010 (boomark / email).