Confidentiality and Non-Competition Contracts
Confidentiality and Non-Competition Contracts Summary
In order to preserve the confidentiality of the proprietary information of your business, you need contractual prohibitions with those to whom you disclose your proprietary information. These contracts, generally referred to as non-disclosure agreements, create civil liability should the receiving party disseminate the proprietary information in violation of the non-disclosure agreement. These agreements will allow your business to:
• Establish Trade Secret Protection of Proprietary Information;
• Allow Study and Evaluation of R and D Products by Distributors and Focus Groups;
• Discuss Business During the Course of Strategic Alliance Negotiations;
• Discuss Proprietary Information with Vendors and Outsourced Manufacturers;
Closely related to confidentiality is the idea of non-competition: not allowing someone who legally acquired the proprietary information of your business to directly or indirectly compete with your business. While most forms of contracts and contractual language prohibiting competition are against public policy and void in the State of California, there are exceptions when non-competition agreements do not violate public policy and are enforceable. Most notably, non-competition agreements are valid in California in some instances relating the sale of a business.
Contact San Diego Corporate Law for a consultation to discuss the best ways to protect the proprietary information of your business.
Confidentiality and Non-Competition Contract Details
Non-disclosure agreements, or NDAs, are used when a business wants to make proprietary information available to a person or when a business wants to restrict a party from using proprietary information for purposes not intended or anticipated when the proprietary information was divulged.
Businesses contemplating future relationships, such as strategic partnership, merger or acquisition, or outsourcing often need to divulge proprietary information to each other in order to fully evaluate the possible partnership, sale, or other relationship. In general, and especially when the proprietary information is protected as a trade secret, proprietary information will not be disclosed until a non-disclosure agreement between the businesses is executed.
Non-competition agreements are generally void as against public policy in the State of California. California Business and Professions Code § 16600; Edwards v. Arthur Andersen, LLP, 44 California 4th 937 (2008).
The most notable exceptions to this general invalidity are:
1. Where the owner of a business is selling the goodwill of the business, a non-competition agreement may be held as valid. California Business and Professions Code § 16601.
2. Where a partnership is dissolved or when a partner dissociates, a non-competition agreement may be held as valid. California Business and Professions Code § 16602.
3. Where an LLC is dissolved, a non-competition agreement may be held as valid. California Business and Professions Code § 16602.