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Return or destruction of confidential information

Some confidentiality provisions state that the receiving party must return or destroy all protected information upon termination of the agreement or at some other specified time. In some circumstances, agreeing to such a provision might not be such a good idea.

Some reasons not to agree to a return-or-destruction obligation

In many situations, a receiving party won’t remember to comply with a return-of-destruction requirement, and the disclosing party won’t remember to follow up on it.

Moreover, if the receiving party has re-disclosed confidential information to a third party (presumably only as permitted by the agreement), it might find itself needing to retrieve and destroy the information.

Arguably, a return-or-destruction obligation does only two things:

  • it creates a compliance burden for the receiving party — especially if the receiving party’s notes, emails, and similar documents must also be returned or destroyed; and
  • it gives the disclosing party ammunition with which to brand the receiving party as unreliable or even a scofflaw: “Ladies and gentlemen of the jury, the receiving party obviously didn’t take its return-or-destroy obligations seriously; we have no reason to think they took their other obligations seriously either.”

The receiving party may have a business motivation to return or destroy confidential information: it might not want the continuing ‘taint’ that goes along with having the disclosing party’s information sitting in its files.

The parties might be just as well served, therefore, by omitting a return-or-destroy obligation.

Backup media recycling

If the parties are going to agree on a return-or-destroy clause, the receiving party will want to include a carve-out for normal recycling of backup media.

Without such a carve-out, the disclosing party might try to force the receiving party to retrieve, search, and purge its email backup tapes. That likely would be very burdensome (not to mention expensive).

Outside-counsel retention of archival copies

If the receiving party were scrupulous in giving archival copies of all the disclosing party protected information it received to its outside counsel, the archival copy could prove useful in arguing that it never had access to a particular piece of information.

But doing this might not be worthwhile unless protected information were disclosed exclusively in suitably marked writings, or through narrow channels such as an M&A data room.

For less-formal disclosures, the fact that particular information wasn’t contained in the outside counsel’s archival copy might not mean much, and so allowing outside counsel to retain archival copies might not provide much benefit.

Incidentally, the phrase ‘outside counsel only’ is well understood to lawyers who work in litigation. It means, among other things, that not even the client’s in-house counsel are allowed to have access to the information in question. See generally this protective order entered in a patent-infringement case.

A more elaborate return-or-destruction clause

For a much-more elaborate clause than those in the sample clauses, see this comment by Chris Lemens at Ken Adams’s AdamsDrafting blog.