Residuals Clause

What Employees Can Remember

A residuals clause creates a legal exception to confidentiality obligations for information that employees naturally retain in their memories. When engineers, product managers, or executives are exposed to confidential information, they inevitably remember some of it - general concepts, approaches, techniques, and ideas. The residuals clause permits them to use this "residual knowledge" in their future work.

The core concept: What remains in a person's unaided memory after exposure to confidential information can be freely used, even to develop competing products. This protects employee mobility and prevents companies from effectively "owning" what's inside their employees' heads.

Unaided Memory

Only applies to what employees remember naturally, without consulting notes, documents, or other records containing confidential information.

No Intentional Memorization

Employees cannot deliberately study and memorize confidential information with the intent to circumvent the NDA.

Trade Secret Carveout

Most residuals clauses exclude trade secrets, source code, and other highly sensitive categories from the exception.

The Silicon Valley Standard

Residuals clauses became standard in Silicon Valley for several practical reasons:

Talent Mobility: The tech industry thrives on talent moving between companies. Without residuals protection, employees could be sued for using general skills learned at prior employers.
Practical Reality: It's impossible to "forget" everything you learned. Courts recognize that humans retain information naturally, and trying to prevent this is both impractical and potentially unenforceable.
Innovation Ecosystem: Cross-pollination of ideas between companies drives innovation. Overly restrictive confidentiality could stifle the tech ecosystem.
California Law: California's strong public policy favoring employee mobility makes residuals clauses particularly important for companies headquartered there.

Industry Adoption: Major tech companies including Google, Microsoft, Apple, Amazon, and most venture-backed startups include residuals clauses in their NDAs. Sophisticated receiving parties routinely request them during due diligence, partnership discussions, and technology evaluations.

Sample Clause Language

Discloser-Friendly: Maximum protection for the party sharing confidential information. Narrow residuals exception with extensive carveouts for sensitive information categories.

RESIDUAL KNOWLEDGE (a) Limited Exception. Notwithstanding any other provision of this Agreement, a Representative of the Receiving Party may use Residual Knowledge in the course of such Representative's employment or engagement, subject to the limitations set forth in this Section. (b) Definition. "Residual Knowledge" means general ideas, concepts, know-how, and techniques that are retained solely in the unaided memory of a Representative who has had authorized access to Confidential Information, provided that such Representative: (i) Has not intentionally memorized such information for the purpose of retaining and subsequently using or disclosing it; (ii) Has not created any notes, summaries, or other records to preserve such information; and (iii) Does not consult any written or electronic materials containing Confidential Information when using such Residual Knowledge. (c) Exclusions. This Section shall NOT apply to, and the Receiving Party shall have no right to use: (i) Trade secrets as defined under the Defend Trade Secrets Act or applicable state law; (ii) Source code, object code, or any software in any form; (iii) Algorithms, data structures, or system architectures; (iv) Customer lists, pricing information, or financial data; (v) Patent applications, invention disclosures, or unpublished research; (vi) Information marked or identified as "Highly Confidential" or "Restricted"; or (vii) Any verbatim or substantially similar reproduction of Confidential Information. (d) No License. Nothing in this Section grants any license or right under any patent, copyright, trademark, or other intellectual property right of the Disclosing Party.

Balanced (Silicon Valley Standard): The most commonly accepted version in tech industry NDAs. Reasonable protection for both parties with standard carveouts.

RESIDUAL KNOWLEDGE Either party may use Residual Knowledge for any purpose, including use in the development, manufacture, promotion, sale, and maintenance of its products and services; provided that this right does not constitute a license under any patent, copyright, or other intellectual property right. "Residual Knowledge" means ideas, concepts, know-how, and techniques that are retained in the unaided memories of the Receiving Party's Representatives who have had access to Confidential Information, provided that: (a) Such Representatives have not intentionally memorized Confidential Information for the purpose of retaining and subsequently using or disclosing it; (b) The Receiving Party has implemented reasonable measures to limit access to Confidential Information to those Representatives with a need to know; (c) Such Residual Knowledge does not include trade secrets (as defined by applicable law), source code, or customer data; and (d) Neither the Receiving Party nor its Representatives have created or retained any written notes, documents, or other records containing such Confidential Information. For the avoidance of doubt, this Section does not permit copying, reproduction, or reconstruction of any document, software, or other tangible or electronic embodiment of Confidential Information.

Receiver-Friendly: Broad residuals rights favoring the party receiving confidential information. Often requested by large tech companies evaluating potential acquisitions or partnerships.

RESIDUAL KNOWLEDGE The Receiving Party's personnel may use and disclose any Residual Information for any purpose, including developing and marketing products or services that compete with those of the Disclosing Party, and neither the Receiving Party nor any of its personnel shall have any obligation to limit or restrict the assignment of personnel who have had access to Confidential Information. "Residual Information" means any information in intangible form that may be retained in the unaided memories of the Receiving Party's personnel who have had access to Confidential Information, including ideas, concepts, know-how, techniques, and experience. Neither the Receiving Party nor its personnel shall be required to take any measures to avoid retention of Residual Information. Nothing in this Agreement shall: (a) Prevent any person who has had access to Confidential Information from working on projects that involve subject matter similar to that reviewed under this Agreement; (b) Require the Receiving Party to restrict the work assignments of its personnel; or (c) Require any person to submit to debriefing or other procedures designed to identify or purge Residual Information. This Section shall survive termination of this Agreement indefinitely.

When Residuals Clauses Apply

Appropriate Scenarios:

Technology Licensing: When engineers will review software architecture, algorithms, or technical approaches
Due Diligence: Evaluating potential acquisitions where reviewing confidential business information is essential
Partnership Discussions: Exploring integrations or collaborations involving proprietary technology
Consulting Engagements: Consultants working across multiple clients in similar industries
Vendor Evaluations: When technical teams must assess proprietary solutions

May Be Inappropriate For:

Highly sensitive trade secrets that could destroy competitive advantage if retained
Pharmaceutical formulas or manufacturing processes
Detailed financial projections or M&A pricing
Customer databases or personally identifiable information