Protection Clause

Trade Secret Protection

Defines what constitutes trade secrets under the NDA, distinguishes them from general confidential information, and establishes enhanced protections under federal and state trade secret laws.

High Complexity

What This Clause Does

A trade secret protection clause explicitly identifies and provides enhanced protection for information that qualifies as a trade secret under applicable law. While NDAs protect "confidential information" broadly, trade secrets receive special legal status under the federal Defend Trade Secrets Act (DTSA) and state laws based on the Uniform Trade Secrets Act (UTSA). This clause bridges contractual and statutory protections, ensuring the disclosing party can pursue both contract claims and trade secret misappropriation claims if information is improperly used or disclosed.

Why This Clause Matters

Enhanced Remedies: Trade secret claims under DTSA provide access to federal courts, potential ex parte seizure orders, and enhanced damages for willful misappropriation that contract claims alone don't offer.
Perpetual Protection: Unlike general confidential information, trade secrets can be protected indefinitely as long as they maintain secrecy and economic value.
Third-Party Enforcement: Trade secret laws allow claims against third parties who acquire secrets through improper means, even without a direct contractual relationship.
Criminal Penalties: Serious trade secret theft can trigger criminal prosecution under the Economic Espionage Act, creating powerful deterrence.
Clarity and Classification: Explicitly identifying trade secrets helps the receiving party understand which information requires the highest level of protection.

Legal Context

Under both the DTSA (18 U.S.C. 1836) and UTSA-based state laws, a trade secret must: (1) derive independent economic value from not being generally known or readily ascertainable, and (2) be subject to reasonable efforts to maintain its secrecy. Common examples include formulas, algorithms, customer lists, manufacturing processes, and business strategies. The DTSA also requires employers to provide notice of whistleblower immunity protections in any contract governing trade secrets - failure to include this notice limits available remedies. Courts assess whether information qualifies as a trade secret on a case-by-case basis, considering factors like the extent to which the information is known outside the business, measures taken to guard secrecy, the value of the information, and the ease with which it could be properly acquired or duplicated.

Trade Secrets Confidential Information that constitutes a "trade secret" under applicable law shall be protected as such, and the Receiving Party's confidentiality obligations with respect to trade secrets shall continue for so long as such information remains a trade secret. Nothing in this Agreement shall limit or supersede any rights or remedies available to the Disclosing Party under the Defend Trade Secrets Act, the Uniform Trade Secrets Act, or any other applicable trade secret law.

Basic Version: Simple acknowledgment that trade secrets receive perpetual protection and statutory remedies remain available. Suitable for agreements with limited trade secret exposure.

Trade Secret Protection 1. Definition. "Trade Secrets" means any Confidential Information that constitutes a trade secret under the Defend Trade Secrets Act (18 U.S.C. 1836 et seq.) or applicable state law, including but not limited to: proprietary algorithms, source code, formulas, manufacturing processes, customer lists, pricing strategies, and business methods that derive independent economic value from not being generally known and are subject to reasonable efforts to maintain secrecy. 2. Enhanced Obligations. The Receiving Party agrees to protect Trade Secrets with at least the same degree of care it uses to protect its own trade secrets, but in no event less than reasonable care. Trade Secrets shall be disclosed only to employees and contractors who have a need to know and are bound by confidentiality obligations at least as protective as this Agreement. 3. Perpetual Duration. Notwithstanding any other provision of this Agreement, the Receiving Party's obligations with respect to Trade Secrets shall continue for so long as such information qualifies as a trade secret under applicable law. 4. Cumulative Remedies. The rights and remedies provided herein are cumulative and in addition to any other rights and remedies available under the Defend Trade Secrets Act, the Uniform Trade Secrets Act, or any other applicable law. 5. DTSA Notice. Pursuant to 18 U.S.C. 1833(b), the Receiving Party is hereby notified that an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made in confidence to a government official or attorney solely for the purpose of reporting or investigating a suspected violation of law, or in a complaint or other document filed in a lawsuit or other proceeding if such filing is made under seal.

Standard Version: Comprehensive protection with clear definitions, enhanced care standards, and required DTSA whistleblower notice. Appropriate for most business relationships involving valuable proprietary information.

Trade Secret and Proprietary Information Protection 1. Trade Secret Designation. The Disclosing Party may designate any Confidential Information as a "Trade Secret" in its sole discretion by marking it as such or by written notice to the Receiving Party. Such designation shall be conclusive for purposes of this Agreement, and the Receiving Party shall not challenge whether designated information qualifies as a trade secret. 2. Comprehensive Protection Standards. The Receiving Party shall protect all Trade Secrets using the highest degree of care and security measures, including but not limited to: (a) Encryption of all electronic Trade Secrets using AES-256 or equivalent; (b) Physical security measures including locked storage and access logs; (c) Background checks for all personnel with access; (d) Immediate notification to Disclosing Party of any suspected unauthorized access; (e) Annual security audits subject to Disclosing Party's review. 3. Perpetual and Irrevocable Obligations. The Receiving Party's obligations with respect to Trade Secrets shall be perpetual and irrevocable, regardless of whether such information continues to qualify as a trade secret under applicable law. The Receiving Party waives any defense based on the information losing trade secret status. 4. Presumption of Irreparable Harm. The Receiving Party acknowledges and agrees that any breach involving Trade Secrets will cause irreparable harm to the Disclosing Party, and the Receiving Party shall not contest any application for injunctive relief on grounds that the Disclosing Party has an adequate remedy at law. 5. Enhanced Remedies. In addition to all other remedies, the Receiving Party agrees to pay liquidated damages of $500,000 per Trade Secret disclosed or misused, which the parties agree is a reasonable estimate of damages that would be difficult to calculate. 6. DTSA Notice. Pursuant to 18 U.S.C. 1833(b), Receiving Party is notified that federal law provides immunity for confidential disclosure of trade secrets to government officials or attorneys for reporting suspected legal violations.

Warning - One-Sided: This version gives the Disclosing Party unilateral designation power and imposes extensive security requirements and liquidated damages. Courts may not enforce provisions that purport to treat non-qualifying information as trade secrets. Receiving Party should negotiate for objective trade secret criteria.

1
Require Objective Criteria: Push back on provisions allowing the disclosing party to unilaterally designate trade secrets. Insist that trade secret status be determined by whether information actually meets the legal definition, not just the discloser's label.
2
Verify DTSA Notice Inclusion: If you're the disclosing party, ensure the required whistleblower immunity notice is included. Without it, you cannot recover exemplary damages or attorney fees under DTSA even for willful misappropriation.
3
Clarify What Qualifies: Request examples of what the disclosing party considers trade secrets versus ordinary confidential information. This helps you understand the expected protection level and segregate information appropriately.
4
Negotiate Security Standards: If extensive security measures are required, ensure they are technically feasible and proportionate to your organization's capabilities. Propose specific standards rather than vague "highest degree of care" language.
5
Resist Liquidated Damages: Large per-secret liquidated damages provisions may be unenforceable penalties rather than reasonable damage estimates. Negotiate for actual damages or more reasonable liquidated amounts.
6
Preserve Statutory Defenses: Don't agree to waive defenses based on information losing trade secret status. If information becomes publicly known through no fault of yours, you shouldn't remain bound to protect it as a trade secret.

Unilateral Trade Secret Designation

Provisions allowing one party to designate anything as a trade secret "in its sole discretion" can capture ordinary information that doesn't qualify legally. This creates uncertainty and may impose burdens beyond what the law requires.

Missing DTSA Whistleblower Notice

Agreements governing trade secrets must include the 18 U.S.C. 1833(b) immunity notice. If you're the disclosing party and this notice is missing, you'll be barred from recovering exemplary damages and attorney fees.

Waiver of Trade Secret Loss Defense

Requirements to continue protecting information "regardless of whether it qualifies as a trade secret" attempt to create perpetual contractual obligations beyond statutory protections. Courts may find such waivers unenforceable.

Excessive Liquidated Damages

Per-secret liquidated damages of hundreds of thousands of dollars may be deemed unenforceable penalties if they bear no reasonable relationship to anticipated actual damages.

Mandatory Admission of Irreparable Harm

Agreements requiring you to concede irreparable harm and not contest injunctive relief strip away important litigation defenses. While courts often find irreparable harm in trade secret cases, you shouldn't waive the right to argue otherwise.

Trade Secret Protection

What This Clause Does

Why This Clause Matters

Legal Context

Unilateral Trade Secret Designation

Missing DTSA Whistleblower Notice

Waiver of Trade Secret Loss Defense

Excessive Liquidated Damages

Mandatory Admission of Irreparable Harm

Related Clauses

Definition of Confidential Information

Term and Duration

Injunctive Relief

Data Security

Need Help With This Clause?