How to Negotiate Residuals Clauses - NDA Clause Library

When to Request a Residuals Clause

As the receiving party, you should request a residuals clause when:

Due Diligence Review

Evaluating an acquisition target or investment where your team will review extensive confidential business information.

Request residuals

Technology Evaluation

Your engineers will review technical architecture, APIs, or system designs that could influence future development.

Request residuals

Consulting Engagement

You provide consulting services across multiple clients in the same industry.

Request residuals

Partnership Exploration

Exploring a potential integration or joint venture with significant technical knowledge sharing.

Request residuals

As the disclosing party, be prepared to receive residuals requests in these scenarios. Having a pre-approved fallback position will speed negotiations.

Tech Industry Norms

Understanding what's standard in your industry gives you leverage in negotiations. Here's what major tech companies typically accept:

Provision	FAANG Companies	Growth-Stage Startups	Traditional Enterprise
Basic residuals clause	Standard	Negotiable	Negotiable
Trade secret carveout	Always included	Usually included	Required
Source code exclusion	Standard	Standard	Standard
Anti-memorization requirement	Standard	Standard	Required
No license to IP	Standard	Standard	Required
Competitive use permitted	Sometimes	Rarely	Never

Negotiation Strategies

If You're the Discloser

Your goal: Minimize the residuals exception while maintaining a workable relationship.

Start by resisting residuals entirely
If required, insist on comprehensive carveouts
Require anti-memorization language
Exclude source code, trade secrets, and customer data
Limit to specific named individuals with need-to-know

If You're the Receiver

Your goal: Protect employee mobility and future business flexibility.

Cite industry standard and competitor agreements
Emphasize practical reality: employees remember things
Accept reasonable carveouts for truly sensitive categories
Agree to anti-memorization in good faith
Resist personnel restrictions and debriefing requirements

Negotiation Playbook

1

Understand the Other Party's Concern

Disclosers worry about competitors learning their secrets. Receivers worry about litigation risk for their employees. Address these concerns directly rather than fighting over language.
2

Start with Exclusions, Not Permissions

Instead of arguing about what residuals covers, agree on what it definitively excludes: trade secrets, source code, customer lists, and specific "crown jewel" information categories.
3

Offer Access Controls as a Trade

If you're the receiver requesting residuals, offer to limit access to your most sensitive personnel. Fewer people with access means less residual knowledge risk for the discloser.
4

Use "Unaided Memory" as Common Ground

Both parties can usually agree that truly unaided memory (no notes, no documents, no intentional memorization) is acceptable. This is the foundation of any residuals clause.
5

Avoid Poison Pills

Receivers: Don't push for language explicitly permitting competitive use. Disclosers: Don't require debriefing sessions or personnel restrictions. Both create dealbreaker risks.
6

Document the Compromise

Once you reach agreement, ensure the final language precisely reflects the deal. Ambiguous residuals clauses lead to disputes. Both parties should review carefully.

When to Walk Away

As the Discloser, reject residuals clauses that:

Don't exclude trade secrets from the residuals exception
Explicitly permit competitive use of residual knowledge
Allow intentional memorization or don't prohibit it
Include source code, algorithms, or detailed specifications
Survive indefinitely after the NDA terminates
Extend to contractors, advisors, or third parties beyond employees

As the Receiver, resist requirements that:

Require debriefing sessions to "purge" residual knowledge
Restrict future work assignments for exposed personnel
Require you to track or document who accessed confidential information
Make you liable for what employees remember after leaving your company
Completely eliminate any residuals protection when the relationship involves technology review

When to Request a Residuals Clause

Due Diligence Review

Technology Evaluation

Consulting Engagement

Partnership Exploration

Tech Industry Norms

Negotiation Strategies

If You're the Discloser

If You're the Receiver

Negotiation Playbook

Understand the Other Party's Concern

Start with Exclusions, Not Permissions

Offer Access Controls as a Trade

Use "Unaided Memory" as Common Ground

Avoid Poison Pills

Document the Compromise

When to Walk Away

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