Residuals non disclosure agreement

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Email 650.843.7252 HB Ad Slot Residuals Clauses in IP Agreements and NDAs Thursday, October 26, 2017

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A residuals clause is a provision in an IP agreement or non-disclosure agreement stipulating that if a party learns some general information regarding the other party’s IP while working with the other party, the party learning such information is free to use that information retained in its unaided memory in its own business, regardless of the confidentiality or non-use restrictions in the agreement.

The argument in favor of the residuals clause is that it is difficult to separate general information that you learn from each business partner from previously known information or from IP that you may be developing for someone else or internally. For example, even though a software development company may not use specific code that it writes for a client, it would be difficult for such company to separate general methods of writing code that it learns from such client from its own methods or methods that it learns from other clients.

However, even the most carefully crafted residuals clause poses risks for the disclosing party. For example, it can be difficult to prove whether something was retained in someone’s unaided memory, and the concept of what constitutes “general” information can be murky.

There are several steps you can take to minimize the risks of a residuals clause:

If you are the party disclosing confidential information, especially sensitive confidential information, the best option is to avoid the residuals clause entirely. If this is not possible, try to implement as many of the suggestions above and limit the disclosure of confidential information as much as possible.

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