Often in a confidentiality agreement or non-disclosure agreement (NDA), you will see that there is a (seemingly arbitrary) time limit for the agreement’s effectiveness. This limit is often stated as a period of years, for example, two years from the start of the agreement. This article will look at time limits for confidentiality agreements.
If an agreement does not have a time limit, the party who the obligations mainly extend to will often request such a restriction on their obligations of confidentiality. This restriction is because its nature often sees the information protected under these agreements only to have value for certain numbers of years, particularly if it is an innovation or customer information that does often become out of date and therefore lose its value after a couple of years.
There may be state law that applies to your agreement that will mean having a time limit may be advisable (as if it does not it may be considered an unreasonable restraint of trade) however in general of course from the point of view of the discloser, such time limits are to be avoided if possible.
Maggbury v Hafele Australia
The leading case on this issue is a High Court of Australia decision from 2001, Maggbury v Hafele Australia Pty Ltd. In this matter, the appellant was the designer of a wall mounted ironing board that had entered into a confidentiality agreement with the respondent for the purpose of negotiating the production and marketing of these products. The confidentiality agreement had no time limit in it.
This case decided (in a 3:2 split decision). The reasoning for the case held that because most of the information had been made public after the signing of the confidentiality agreements, the agreements not to use the information were no longer enforceable after negotiations had broken down. Thus, they were an unreasonable restraint of trade in circumstances where the information had essentially become part of the public domain.
An important aspect of this decision was that the information had essentially passed into the public domain. So where does this leave obligations that are not subject to a time limit but the information is still secret?
The time obligation can be left open ended if:
- the agreement states clearly that the obligations under it end after (amongst other things) the information enters the public domain; and
- keeping the information secret indefinitely while it remains secret is for the reasonable protection of the owner’s legitimate business interests,
These types of obligations are also common in employment contracts and in that setting it may be important to separate out the confidential information of the employer such as customer lists from trade secrets, which may qualify for a more open-ended approach to the requirements of secrecy.
Another thing to consider when drafting these is whether you ask the recipient of the information to acknowledge, in the document, that the restraints imposed by the contract are no more than are reasonably necessary to protect your legitimate business interests. This may make it more difficult for them to argue against their enforceability later.
If you have any questions about confidentiality agreements or non-disclosure agreements, contact LegalVision’s contract lawyers.