Below are two cases providing insight into how courts are interpreting non-disclosure agreements: one which cautions on the perils of ambiguous wording and one which reaffirms employers’ ability to protect confidential information going beyond trade secrets. The permissible scope of nondisclosure agreements extends only to reasonable limitations of time and geography.
In Loftness Specialized Farm Equipment Inc. v. Twiestmeyer, 818 F.3d 356 (8th Cir. 2016), the plaintiff brought a declaratory judgment action against the defendants, sales representatives for equipment manufactured by the plaintiff, involving contracts associated with the development, manufacture, and sale of the equipment. The defendants asserted counterclaims against the plaintiff for, among other things, breach of a non-disclosure agreement. The district court granted the plaintiff’s motion for summary judgment on the breach of contract counterclaims and entered judgment for the plaintiff on its claim for declaratory judgment. On appeal, the 8th Circuit Court of Appeals affirmed the summary judgment grant to the plaintiff but vacated and remanded the grant of summary judgment on the counterclaim for breach of the NDA. On remand, the district court again granted the plaintiff’s motion for summary judgment on the claim for breach of the nondisclosure agreement. The defendants again appealed to the 8th Circuit.
On appeal, the plaintiff argued that the parties intended under the terms of the nondisclosure agreement that the non-disclosure obligations of the plaintiff would terminate earlier than the 20-year term if the defendants’ equipment was developed for sale, thereby ending the equipment’s status as confidential information. However, the court found ambiguity on whether the parties intended to protect the defendants’ confidential information only so long as it remained confidential or through the 20-year term. Faced with the inability to determine the parties’ intentions through surrounding circumstances and the parties’ own subsequent conduct, the court determined that the agreement was ambiguous as to the application of the 20-year term, vacated the lower court’s grant of summary judgment and remanded for further proceedings.
In Orthofix, Inc. v. Hunter, 630 Fed. Appx. 566 (6th Cir. 2015), the plaintiff filed suit against the defendant for the misappropriation of the plaintiff’s trade secrets and the use and disclosure of “confidential information” covered by the non-disclosure provision in the defendant’s employment agreement. The defendant had left the plaintiff for a competitor and immediately started selling to former customers the same medical device made by the defendant’s new employer. The district court held that the defendant was not liable because (1) the plaintiff did not protect its trade secrets with measures “that are reasonable under the circumstances”; and (2) the non-disclosure provision in the defendant’s employment agreement prohibited the defendant from using his general skills and knowledge and, therefore, formed an unenforceable non-compete agreement.
On appeal, the 6th Circuit Court of Appeals reversed the district court and held in favor of the plaintiff’s breach of contract claim. The court noted there are two types of confidential information that can be protected: (1) trade secrets; and (2) information that does not rise to the level of a trade secret but still shares some characteristics of trade secret information. Further, confidential information is generally defined by the parties, and not by achieving trade secret status, so long as it does not encompass publically available information or an employee’s general knowledge and skill. As such, an employer may expand the scope of protected information through the use of well-drafted non-compete agreements to include confidential information in addition to trade secrets. The court concluded that the defendant had breached the parties’ nondisclosure agreement by providing the plaintiff’s confidential information to his new employer.