Governing Law FAQ

Yes, it can matter significantly. While basic contract law is similar across states, important differences exist that can affect your NDA:

Areas where state law differs:

• Trade secret protection: Some states have stronger trade secret laws than others
• Non-solicitation enforceability: California generally will not enforce non-solicitation clauses; most other states will
• Injunction standards: Requirements for obtaining preliminary injunctions vary
• Statute of limitations: Time limits for bringing claims range from 3-6 years
• Damage calculations: Some states are more generous with consequential damages
• Interpretation rules: Courts in different states apply different canons of contract interpretation

These are separate concepts that are often confused:

Governing Law (Choice of Law):

• Which state's laws will be used to interpret the contract
• Determines the rules applied to your dispute
• A New York court can apply California law if the contract says so

Jurisdiction and Venue:

• Which courts can hear the case
• Where you physically have to show up for litigation
• Affects practical aspects like travel costs and local counsel

Why they can differ: You might want Delaware law (well-developed commercial law) but New York courts (convenient location for both parties). Or you might want California courts (where you are located) applying Delaware law (more predictable).

Best practice: Consider both provisions together. Having Delaware law with California courts means California judges applying Delaware law - sometimes awkward. Matching governing law and venue often makes sense.

There are limits, though they rarely come up in practice:

General Rule: Parties can choose any state's law, as long as:

• The chosen state has a reasonable relationship to the transaction, OR
• There is another reasonable basis for the choice

Exceptions - Courts May Refuse to Apply Chosen Law If:

• The chosen state has no substantial relationship to the parties or transaction AND there is no other reasonable basis
• Application would violate a fundamental policy of the state with greater interest
• The choice was made to evade mandatory laws (fraud, consumer protection, employment)

Practical Reality: For standard commercial NDAs between businesses, choice of law provisions are almost always enforced. Courts respect party autonomy in commercial transactions.

Safe choices: Your state, their state, or a neutral commercial center like Delaware or New York all have obvious connections and will be upheld.

Delaware has developed a reputation as a business-friendly jurisdiction for several reasons:

Well-Developed Commercial Law:

• Decades of business litigation have created extensive, predictable precedent
• The Delaware Court of Chancery specializes in business disputes
• Experienced judges who understand complex commercial transactions
• Decisions are often bench trials (no juries) - more predictable outcomes

Business-Friendly Reputation:

• Generally enforces contracts as written
• Respects freedom of contract
• Less likely to find provisions unconscionable
• Sophisticated understanding of business realities

Practical Considerations:

• Many companies are already incorporated in Delaware
• Lawyers are familiar with Delaware law
• Creates consistency across multiple contracts

Downsides for NDAs: Delaware law is particularly valuable for corporate governance and M&A disputes. For simple NDAs, the differences from other states are less significant.

Not necessarily. California has strong trade secret protection through the California Uniform Trade Secrets Act (CUTSA). However, California law does have some quirks to consider:

California Strengths:

• Strong trade secret statute with injunctions and damages
• Experienced courts that handle many tech/IP disputes
• Attorneys' fees available for willful misappropriation

California Limitations:

• Non-compete provisions: Generally unenforceable (Business and Professions Code 16600)
• Non-solicitation of employees: Often treated as de facto non-competes and may be unenforceable
• Overbroad NDAs: Courts may refuse to enforce provisions that effectively prevent someone from working in their field

Bottom line: If your NDA focuses on true trade secret protection without non-compete or non-solicitation provisions, California law works well. If you want enforceable employee restrictions, consider other states.

Here is a simplified comparison of key states:

State	Trade Secrets	Non-Competes	Non-Solicitation	Overall
Delaware	Strong	Enforceable	Enforceable	Business-friendly
New York	Strong	Enforceable	Enforceable	Sophisticated
California	Strong	Not enforceable	Limited	Employee-friendly
Texas	Strong	Enforceable	Enforceable	Employer-friendly
Illinois	Strong	Limited	Limited	Middle ground

Note: This is simplified. Actual enforcement depends on specific language, facts, and recent case law. Consult local counsel for current guidance.

This is a common situation that requires careful consideration:

Legal Validity: Generally enforceable, especially if the disclosing party is incorporated in Delaware or has other Delaware connections.

Practical Concerns:

• Your California lawyers may need to research Delaware law (added cost)
• Delaware law may enforce provisions California would not
• California public policy may still apply to California employees

What to Watch For:

• Non-compete provisions - may be enforceable under Delaware law even though California would reject them
• Non-solicitation provisions - same issue
• Any provision that seems unusually one-sided

Negotiation Options:

• Propose California law instead (your home state)
• Accept Delaware law but specifically carve out any non-compete/non-solicitation provisions
• Add language saying "to the extent enforceable under the law of the employee's state of residence"

Several states work well as neutral choices:

Delaware:

• Most common neutral choice for commercial contracts
• Well-developed, predictable commercial law
• Respected by courts nationwide
• Good choice if either party is Delaware-incorporated

New York:

• Major commercial center with sophisticated courts
• Extensive precedent for commercial contracts
• Good choice for financial or major corporate transactions

Geographic Midpoint:

• A state roughly between both parties' locations
• Can be paired with matching venue
• Reduces "home court advantage" concerns

State of Major Performance:

• Where most of the work will happen
• Has logical connection to the transaction
• May already be familiar to both parties

Practical tip: Delaware is the safest neutral choice for most commercial NDAs. It is so commonly used that neither side can claim it provides unfair advantage.

It depends on what is at stake:

Worth Negotiating When:

• The NDA includes non-compete or non-solicitation provisions
• The chosen state's law is notably unfavorable to receiving parties
• You have employees in states with strong public policies (like California)
• The statute of limitations differs significantly
• Venue is also in the other party's home state (double disadvantage)

Less Important When:

• It is a simple, mutual NDA without restrictive covenants
• Both proposed states have similar commercial law
• The proposed state is a neutral like Delaware
• You are unlikely to ever litigate (strong relationship, low stakes)

Strategy: Pick your battles. If you have bigger issues to negotiate (scope of confidential information, survival period, etc.), accept a reasonable governing law choice. Save your negotiating capital for the provisions that will actually affect day-to-day compliance.

Generally yes, though not required. Here is why matching is usually better:

Advantages of Matching:

• Judges are most familiar with their own state's law
• No need for expert testimony on foreign law
• More predictable outcomes
• Simpler briefing and lower legal costs
• Avoids procedural complications

When Mismatching Might Make Sense:

• You want Delaware law but cannot get Delaware venue (other party insists on a different location)
• One state has better substantive law, another has more convenient courts
• The transaction has legitimate connections to multiple states

Practical reality: Most NDA disputes never go to trial. If you are optimizing for the unlikely litigation scenario, matching law and venue is cleaner. If you are just trying to get the deal done, accept reasonable terms on both.

This is technical language that closes a potential loophole:

The Problem It Solves:

• Every state has "conflicts of laws" rules that determine which state's law applies
• Without this language, a court might apply Delaware's conflicts rules
• Those rules might point to a different state's law (like the state where the dispute arose)
• You could end up with a different state's law than you intended

What the Language Does:

• Tells the court to apply Delaware law directly
• Skip the conflicts analysis
• Do not let conflicts rules redirect to another state

Example Clause: "This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts of laws principles."

Bottom line: Always include this language. It is standard boilerplate that makes your choice of law more reliable.

Yes, typically. International parties frequently agree to US state law, especially for US-focused transactions:

Common Approaches:

• US law if US party is larger: The dominant party often selects their home jurisdiction
• English law: Common neutral choice for international commercial contracts
• New York law: The US equivalent of English law - widely accepted internationally
• Arbitration: Often combined with international agreements to avoid foreign court systems

Considerations:

• Will judgments be enforceable in the foreign party's country?
• Does the foreign country have mandatory laws that cannot be contracted around?
• Are there import/export considerations for the confidential information?

Watch out for: EU parties may have GDPR concerns that affect how personal data (which can be confidential information) must be handled. The governing law clause does not override GDPR obligations.

The CISG (United Nations Convention on Contracts for the International Sale of Goods) typically does not apply to NDAs, but you should exclude it explicitly to be safe:

Why It Probably Does Not Apply:

• CISG applies to contracts for the sale of goods
• NDAs are typically service/confidentiality agreements, not goods sales
• Even if attached to a goods transaction, the NDA portion is usually severable

Why Exclude It Anyway:

• Eliminates any ambiguity
• Standard practice for US companies
• CISG has different rules that could affect contract interpretation
• Most US lawyers are less familiar with CISG

Standard Exclusion Language: "The United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement."