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.
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.
[1] sit-up Limited v. IAC/Interactive Corp., 2008 WL 463884 (S.D.N.Y. Feb. 20, 2008)
About the author
Mari Bonthuis, Partner, Head of Litigation
Mari is a litigation partner at Sterlington and leads the firm’s dispute-resolution practice. She is a highly skilled litigator who has tried many cases in federal and state courts as well as before arbitrators. Mari has significant experience with partnership disputes, separation disputes including non-competes, employment agreements, insurance coverage, and securities litigation. Prior to joining the firm, she worked for 10 years in the New York office of Covington & Burling LLP after completing a federal clerkship in the United States District Court for the Eastern District of Pennsylvania. Mari received her J.D. cum laude from New York University School of Law, where she was a Dean’s Scholar, and her B.A. magna cum laude from St. Olaf College.
Sterlington’s Litigation Practice
The Sterlington litigation team has both breadth and depth of experience. The firm regularly represents clients at private equity firms, hedge fund firms, family offices, cryptocurrency companies, and start-ups in both pre-dispute and litigated settings, including arbitrations. Coming from prominent firms such as Covington & Burling, Simpson Thacher & Bartlett, Walkers, and Manatt, Phelps & Philips, the team has the bench strength to tackle litigation of any size and complexity in multiple jurisdictions. We make extensive use of our integrated deal teams and specialists for support on litigation matters, and we welcome alternative fee arrangements where possible.
Sterlington’s Legal Outsourcing solution
Sterlington’s Legal Outsourcing solution provides end-to-end contract management for NDAs, CDAs, MSAs, engagement letters, non-reliance letters, service agreements, vendor agreements, and all other contracts.
