Caps the maximum damages recoverable for breaches of the NDA and may exclude certain types of damages entirely.
⚠ High Risk
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Plain English Explanation
A limitation of liability clause sets boundaries on how much money one party can recover from the other if something goes wrong. These clauses typically work in two ways:
Damage caps: Set a maximum dollar amount that can be recovered, regardless of actual damages. For example, "total liability shall not exceed $100,000."
Damage type exclusions: Eliminate liability for certain categories of damages, such as consequential damages, lost profits, or punitive damages.
In NDAs, these clauses are particularly controversial because the whole point of an NDA is to prevent harm from disclosure - and the harm from disclosing trade secrets can be enormous and difficult to quantify. A limitation of liability can undercut the protection the NDA is supposed to provide.
Courts generally enforce these clauses if they're clearly written and mutually agreed upon, but some jurisdictions limit enforcement in cases of gross negligence, willful misconduct, or fraud.
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Why This Clause Matters
Risk Allocation: This clause fundamentally determines who bears the risk of a confidentiality breach. Low caps shift risk to the disclosing party.
Deterrent Effect: If liability is capped at a low amount, there's less financial deterrent against careless handling of confidential information.
Recovery Reality: Even if you have unlimited liability rights in theory, you can only collect what the other party can pay. Caps provide certainty.
Insurance Alignment: Liability limits should align with available insurance coverage to ensure there's actually money to pay claims.
Asymmetric Value: One party's secrets may be worth much more than the other's. Symmetric caps may be unfair in asymmetric information exchanges.
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Risk Factors
Cap Amount: Is the cap proportional to the potential harm from disclosure? A $50,000 cap when you're sharing billion-dollar trade secrets is dangerously low.
Consequential Damages Exclusion: Most actual harm from confidentiality breaches is "consequential" (lost business, competitive damage). Excluding these severely limits recovery.
Carve-Outs: Are there exceptions for willful misconduct, gross negligence, or breach of confidentiality specifically? These carve-outs provide important protection.
Mutual vs. One-Sided: Is the limitation mutual, or does only one party get protected? One-sided limits unfairly favor the protected party.
Indemnification Interaction: Does the limitation apply to indemnification obligations? If not, indemnification could create backdoor unlimited liability.
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Clause Versions
Limitation of Liability
EXCEPT FOR BREACHES OF CONFIDENTIALITY OBLIGATIONS, each party's total cumulative liability under this Agreement, whether in contract, tort (including negligence), or otherwise, shall not exceed the greater of: (a) One Million Dollars ($1,000,000), or (b) the amounts paid or payable under any related commercial agreement between the parties during the twelve (12) months preceding the claim.
EXCLUSION OF CONSEQUENTIAL DAMAGES: EXCEPT FOR BREACHES OF CONFIDENTIALITY OBLIGATIONS, neither party shall be liable to the other for any indirect, incidental, consequential, special, or punitive damages, including but not limited to loss of profits, loss of revenue, loss of business, or loss of data, even if such party has been advised of the possibility of such damages.
CONFIDENTIALITY BREACH CARVE-OUT: The foregoing limitations shall not apply to:
(a) Breaches of either party's confidentiality or non-disclosure obligations under this Agreement;
(b) Willful misconduct or fraud by either party; or
(c) Either party's indemnification obligations arising from third-party claims.
This limitation of liability reflects the allocation of risk between the parties and is an essential element of the basis of the bargain between them.
Note: This balanced version provides reasonable caps but importantly carves out confidentiality breaches from the limitations, recognizing that NDA breaches require full recourse.
Limitation of Liability
NO LIMITATION ON CONFIDENTIALITY BREACH DAMAGES: The parties acknowledge that a breach of the confidentiality obligations under this Agreement could cause irreparable harm that may be difficult to quantify. Accordingly, there shall be no limitation on the damages recoverable by either party for breach of the confidentiality provisions of this Agreement, including but not limited to:
(a) Direct damages;
(b) Consequential and incidental damages;
(c) Lost profits and lost business opportunities;
(d) Costs of investigation and remediation; and
(e) Reasonable attorneys' fees and costs.
LIMITED APPLICATION: For claims unrelated to confidentiality breaches, each party's liability shall not exceed the greater of (a) Five Hundred Thousand Dollars ($500,000), or (b) amounts paid under any related agreement, and neither party shall be liable for indirect or consequential damages.
WILLFUL BREACH: Notwithstanding any other provision, there shall be no limitation on damages resulting from a party's willful, intentional, or reckless breach of this Agreement.
EQUITABLE RELIEF: Nothing in this Agreement limits either party's right to seek injunctive or other equitable relief for any breach or threatened breach of confidentiality obligations.
Why this favors you: No limitations on damages for confidentiality breaches (the main concern in an NDA), explicitly preserves recovery of lost profits and consequential damages for NDA breaches, and carves out willful breaches.
Limitation of Liability
MAXIMUM LIABILITY: TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT SHALL EITHER PARTY'S TOTAL CUMULATIVE LIABILITY UNDER THIS AGREEMENT, INCLUDING LIABILITY FOR BREACH OF CONFIDENTIALITY OBLIGATIONS, EXCEED FIFTY THOUSAND DOLLARS ($50,000).
EXCLUSION OF DAMAGES: IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY:
(a) INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY, OR PUNITIVE DAMAGES;
(b) LOSS OF PROFITS, REVENUE, BUSINESS, OR ANTICIPATED SAVINGS;
(c) LOSS OF GOODWILL OR REPUTATION;
(d) LOSS OF DATA OR COST OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES; OR
(e) ANY OTHER DAMAGES OF ANY KIND,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND REGARDLESS OF THE THEORY OF LIABILITY (CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE).
NO CARVE-OUTS: The foregoing limitations apply to all claims arising under or related to this Agreement, including claims for breach of confidentiality obligations, and there are no exceptions or carve-outs for any type of breach or conduct.
ESSENTIAL BASIS: The parties acknowledge that the limitations set forth in this section are an essential basis of the bargain and that neither party would enter into this Agreement without these limitations.
Warning - Severely limits NDA protection: Very low $50,000 cap applies even to confidentiality breaches, broad exclusion of all consequential damages, explicitly no carve-outs, and covers all theories of liability. This essentially makes the NDA unenforceable for any serious breach.
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Negotiation Tips
1
Carve Out Confidentiality Breaches: This is the most important point. The whole purpose of an NDA is to protect confidential information. A liability cap that applies to confidentiality breaches defeats the purpose.
2
Preserve Consequential Damages: Most harm from disclosure is consequential (lost business, competitive disadvantage). If consequential damages are excluded, your actual recovery may be minimal.
3
Size Caps Appropriately: If there must be a cap, ensure it's proportional to the value of the information being shared. A $50,000 cap is meaningless if you're sharing trade secrets worth millions.
4
Add Willful Breach Exception: Even if there's a cap, intentional or willful breaches should be excluded. No one should be able to pay a fixed price to intentionally violate the NDA.
5
Check Indemnification Interaction: Ensure that if the limitation of liability is capped, indemnification obligations are also capped - or that they're both carved out together.
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Consider Information Value Asymmetry: If your secrets are more valuable than theirs, symmetric caps may be unfair. Consider different caps for each party or negotiate based on relative exposure.