Information Sharing Agreements Confidential Information...

May 14, 2008 Webcast

Information Sharing AgreementsConfidential Information and Feedback:

Two Sides of the CoinJeffrey Ross Stern, Executive Director, Morgan Stanley

Karen Sanzaro, Partner, Hunton & Williams

John Thomas, Technology Counsel, Thomson ReutersAbstract: Getting the legal framework for information sharing right is a key to success in the global, information driven economy. This presentation coversrecent developments with which in-house counsel should be well-versed. The presenters will focus on the interplay between confidentiality agreements,residuals clauses and feedback agreements. A failure to properly employ these provisions could result in the loss of valuable trade secrets or other material loss.The presenters will provide best practices, legal language and a standard form feedback agreement.

The views of the presenters are their own and not necessarily those of their employers.

2Information Sharing AgreementsConfidential Information and Feedback: Two Sides of the Coin

Agenda – Two Sides Of The CoinConfidentiality Agreements

Key Practice Pointers In Drafting And Negotiating

Residuals ClausesPurpose

Practice Pointers/Pitfalls

Feedback AgreementsAvoiding Fatal Error – Sending Confidential Information AsFeedback

Key Practice Pointers In Negotiating And Using

Mock Negotiation

Your Feedback - Questions and Comments


Introduction


Confidentiality Agreements

Confidential Information Constitutes VitalCorporate Assets

Your trade secretsThird party trade secrets in your environmentMaterial non-public informationPersonal informationOther non-public info

PurposeProtect Confidential Info You DiscloseProtect Confidential Info Others Disclose To YouBilateral Exchange of Confidential Info


Confidentiality Agreements – KeyPractice Pointers

Train Business To Use Appropriate FormHave the right forms readySending, receiving, bi-lateralStandalone NDA, confidentiality provision inan agreementConsequences of using wrong form

Failure to protect confidential informationUnnecessary confidentiality obligations


Key Practice Pointers (cont’d)

Tailor the scope of your obligationsFirst line of defense (residuals clause = last line)Unnecessarily broad confidentiality obligation =unnecessarily broad potential breach liability

Consider carefully necessary scope of useConfirm with your receiving business unit that scope issufficient for their purposesAffiliates, Contractors, Advisors

Do not agree that your trade secrets need not bekept confidential after a period of time



The Standard Carve OutsPublicly available – exclude personallyidentifiable info from carve outs and specifyuse restrictions and applicable privacy lawsapply (e.g., GLB, HIPAA, foreign dataprotection laws)Independently developed – as documentedand/or without reference to or reliance upon theConfidential Information



The Standard Carve Outs (cont’d)Received from a third party – not underobligation of confidentialityResiduals clause adds a layer of protection forreceiving party

SubpoenasShould provide the disclosing party with noticeand opportunity to object where permissibleWhere regulators request the information


Residuals Clause: PurposeResiduals clause is in the nature of a “safe harbor”for the receiver of confidential informationdesigned to prevent frivolous litigation

Provides a stronger defensive posture to a claim ofmisuse or improper disclosure of information

Hard to distinguish where “ideas” came fromBusiness people are exposed to a broad range ofinformation from many sourcesMay not fall squarely under a carve out, e.g.independently developed


Sample Residuals ClauseThe Discloser acknowledges that the Recipientand/or its affiliates and its and their Representatives[to be defined] may from time to time use Residuals,as defined below, for any purpose, including withoutlimitation, in the development, manufacture,promotion, sale and maintenance of any products orservices. The term “Residuals” means anyConfidential Information [to be defined] retained inthe unaided memories of any of Recipient, itsaffiliates, or Recipient’s or its affiliates’Representatives who had access to ConfidentialInformation pursuant to the terms of this agreement.One’s memory is unaided if one has not intentionallymemorized the relevant Confidential Informationwith the intention of retaining and subsequentlyusing or disclosing it for purposes unrelated to theproposed transaction.


Sample Residuals Clause (cont’d)

Negotiation point in favor of the Discloser Add to end of paragraph:

– “Notwithstanding the foregoing, this paragraph doesnot grant any license under patents, trademarks orcopyrights of the Discloser.” [trade secrets?]

– As drafted, the above clause preserves the right of thedisclosing party to sue based on its public intellectualproperty

» Private intellectual property: trade secrets


Sample Residuals Clause (cont’d)Negotiation points in favor of DiscloserReplace:– “The term “Residuals” means any Confidential

Information….”With:– “The term “Residuals” means any general

information, technology, ideas, concepts, know-howand techniques contained in the ConfidentialInformation…”» Gives the disclosing party another chance to

argue that an idea was a specific trade secret thatshould not have been copied

» Residuals clauses do not reflect perfect science


Sample Residuals Clause (cont’d)

Additional language:The Discloser acknowledges that Recipient and/or any ofits affiliates may be considering, and may in the futureconsider, business ideas, products and technologiessimilar to or the same as those of the Discloser. Nothingin this agreement shall prevent Recipient or any of itsaffiliates from pursuing any such ideas or pursuingbusinesses similar to or related to the Discloser’s, eitherinternally or through investments in or representation ofthird parties.– Addresses proximity of alleged misuse of information to

preserve flexibility in the recipient’s ability to conductbusiness.


Residuals Clause: Practice PointerConsider the Context

Similar development planned?– Clean room environment possible?– Possibility of resale? Competition?– Possibility of avoiding receipt of confidential

information?

Possibility of disclosure to competitors?– RFPs?

Other business activities which could createan issue?


Feedback: The Other Side of the Coin

Feedback: purpose of disclosing the information isfor use in widely available products, i.e. for non-confidential purposes

Confidential Information: purpose of disclosing isfor use in confidence to further a private relation

Get it wrong and it could be uglyCompany may inadvertently disclose a trade secret as feedback

Vendor may inadvertently misuse confidential information asfeedback in breach of confidentiality obligation


Advantages To Giving Feedback

Product becomes more useful/efficientLess costly for customer to steer developmentof standard version than to maintain “forked”customizations

core versus non-core IP

Build vendor-customer relationship / GoodwillAccess/input to betas and product planningImproved communications/sales opportunities

Learning and development for employees


Disadvantages To Giving Feedback

Time spentVendor or customer loss of IP or potential royaltiesCustomer could be subject to infringement liability

Customer may have secondary liability to third parties underinducement or contribution theoryUnless the feedback agreement contains a disclaimer,Customer may be liable to VendorCustomer may not be able to withdraw feedbackCustomer may want to require that Vendor not attributefeedback to Customer

IP issue for Vendor if feedback agreement is notproperly structured or if feedback infringes other IP


Sample Master Feedback Agreement andMock Negotiation Including PracticePointers


Scope of Feedback


License v. Ownership


Customer Warranty?


Comments or Questions

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