Time limit (‘sunset’) for confidentiality obligations

(See also the sample clauses.)

When negotiating a nondisclosure agreement (NDA), the receiving party will sometimes want a “sunset” on its confidentiality obligation, so that after a stated period of time the receiving party will be free to use or disclose the information as it sees fit.

A receiving party might argue for such a time limit along the following lines:

We need a ‘sunset’ on our confidentiality obligations. The information you’re going to be giving us doesn’t seem like the crown jewels. It’s likely to lose its value over time. After a certain time has passed, we shouldn’t have to worry any more whether we need to treat the information as confidential.

Besides, if applicable law like HIPAA or Gramm-Leach-Bliley requires continued confidentiality, then the information won’t be subject to the confidentiality time limit in any case, regardless what this Agreement says. So you shouldn’t have anything to worry about on that score.

The disclosing party may well have a very different view, and might respond as follows:

We can’t know in advance that any particular information will lose its value over time. For all we know, something we tell you might turn out to be the equivalent of the Coca-Cola® formula.

And there’s some case law indicating that if we agreed to a time limit, we might later be held not to have taken reasonable measures to protect our confidential information.[1]

So we need for your confidentiality obligations to remain in place unless and until the information in question falls within an exclusion category.

[1] See Julianne M. Hartzell, Time Limits in Confidentiality Agreements, in American Bar Association, Intellectual Property Litigation, Volume 20, Number 3, spring 2009 (accessed Aug. 12, 2009).

Two possible compromises come to mind:

• The contract could provide that information meeting the legal definition of a trade secret will continue to be subject to confidentiality obligations. That, of course, might merely postpone the battle until later, when the parties could have to litigate whether particular information qualified as a trade secret. But in many business situations, that could be a risk worth taking.
• The disclosing party might negotiate the right, before expiration of the confidentiality obligation (or within X days thereafter), to give the receiving party written notice that items A, B, and C will continue to be subject to confidentiality obligations.

Either of these exceptions might enable parties to compromise on expiration of the confidentiality obligation, thus allowing them to ‘get to signature’ on an NDA so they can go forward with their main business together.