When It Comes to Confidentiality Agreements, Just Getting the Signature Is Not Enough

10 November 2014 Dashboard Insights Blog

Automotive suppliers and other manufacturers frequently have to share their valuable intellectual property with third parties. A supplier might need to share CAD files with another supplier to ensure that the finished product works, or a business that has designed a product may outsource the manufacturing to a business that can better handle production. Parties to such arrangements frequently sign a confidentiality agreement forbidding disclosure or unauthorized use of the design before proceeding with their arrangement. But is the confidentiality agreement ironclad at that point?

Not necessarily. In nClosures, Inc. v. Block & Co., the Seventh Circuit Court of Appeals, applying Illinois law, held that a confidentiality agreement entered into between a product designer and manufacturer was unenforceable, because the owner of the confidential information had not taken reasonable steps to protect its confidentiality. 

According to the ruling, nClosures designed cases for electronic tablets and other devices, and entered into an agreement with Block to manufacture those cases. As part of that process, the parties entered into a confidentiality agreement covering nClosures’s designs. Five months after nClosures’s device went on sale, Block released its own competing product. Litigation followed.

Block moved for summary judgment on each of nClosures’s claims, including nClosures’s claims for trade secret misappropriation breach of the confidentiality agreement. The trial court granted summary judgment on each claim, holding in part that nClosures could not enforce its confidentiality agreement because it had not taken reasonable steps to protect its design. The Seventh Circuit stated that nClosures had not entered into confidentiality agreements with other people who had accessed the designs of the cases, had not marked the design drawings as confidential or proprietary when they were transmitted to Block, and had not limited access to the designs (either electronically or by lock-and-key). Thus, even though nClosures claimed to have a general policy of confidentiality of the design information, it had not taken reasonable efforts to maintain its confidentiality, and its confidentiality agreement with Block was unenforceable.

nClosures provides a valuable reminder to trade secret owners that obtaining confidentiality agreements—while important—is not enough to protect the confidentiality of those trade secrets. Vigilance during the lifespan of a trade secret is needed, because even if lapses in trade secret protection are not directly related to a confidentiality agreement, the enforceability of that agreement can be lost.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services