That Pesky NDA. Why It is Necessary

The Seventh Circuit, in the form of Chief Judge Easterbrook and others was recently dismissive of a party’s claim of breach of confidentiality and unjust enrichment by a prospective business partner. In Fail-Safe, LLC v. A.O. Smith Corporation No. 11-11354 decided March 29, 2012 7th Circuit Court of Appeals, the Court that the plaintiff had done little or nothing to protect the trade secrets which it later claimed were misused by a former business partner.

The Court noted that FailSafe had taken no steps to protect any alleged trade secrets. FS’s failure was shown by the following circumstances:

  • None of the information provided by FS was marked confidential.
  • FS did not inform AOS that it expected the information to remain confidential.
  • FS signed AOS’s one-way NDA but did not obtain, or even request, a similar one-way or a two-way NDA protecting FS’s confidential information.

That third bullet is chilling, and probably was the finishing touch, according to the Court’s view. In short, NDA’s are pesky and introduce a level of formality into a relationship at a time when both parties are :”courting”, in a business sense. Nevertheless, get one on the table of your counterpart. It will help you down the line and show your prospective business partner that you know what you are doing.


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