Definitions of “confidential” are central to non-disclosure agreements (NDAs). Management and a diligent review process for NDAs can help companies avoid litigation surprises found in these definitions. Consider the following failed merger.[1]
In the early 2000s, QVC dominated the U.K. home shopping market. IAC/InterActive Corp., the parent of QVC's main competitor, the Home Shopping Network, was eager to expand its presence there. That's when “sit-up”, a popular U.K. auction-style home shopping channel, approached IAC with a potential deal.
To proceed with the deal, sit-up and IAC executed an NDA that defined the “evaluation materials” sit-up agreed to provide to IAC as:
…all information, whether furnished before or after the date of [the NDA] and regardless of the manner in which it is furnished, together with all analyses, compilations, studies or other documents or records prepared by [IAC] and its Representatives to the extent such analyses, compilations, studies, documents or records contain, otherwise reflect, or are generated from such information.
This definition specifically excluded certain categories of information: information that was publicly available, already in IAC's possession or independently acquired by IAC, or received from another source.
After extensive due diligence, IAC made several offers to purchase sit-up, but all were rejected without counteroffers. Rebuffed, IAC withdrew from the process. Six months later, IAC purchased U.K. channel AuctionWorld and launched the U.K. channel iBuy. sit-up sued IAC, alleging IAC had breached the NDA by using sit-up's trade secrets from the “evaluation materials” to develop iBuy.
IAC's primary defense in the lawsuit? That sit-up's “trade secrets” were not actually trade secrets. The court was unimpressed by this argument, calling it “untenable.” From its view, IAC and sit-up had negotiated an NDA with a definition of “evaluation materials.” If the information in question was within the definition, any use of it outside of the potential sit-up/IAC transaction was a breach of the NDA, regardless of whether that information independently qualified as a “trade secret.”
While IAC was able to show that some of the information had become publicly available, the evidence showed that IAC had used materials that were not within the exceptions to the definition. Whether that information was used to launch iBuy was irrelevant; its use outside of the IAC/sit-up relationship was a breach of the NDA.
Key takeaways:
- Consider the breadth of information covered by an NDA – is it your intent to include materials that wouldn't necessarily be trade secrets?
- Carve out reasonable exceptions, like publicly available information.
- Cabin information you receive under an NDA – don't make it easily accessible within your organization.
Footnote
1 sit-up Limited v. IAC/Interactive Corp., 2008 WL 463884 (S.D.N.Y. Feb. 20, 2008)
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