The current COVID-19/coronavirus crisis has forced many companies to buy or sell new technology under a previously unseen sense of urgency. While this speed is critical – and absolutely understandable – take care to ensure that today’s deal structure does not undo tomorrow’s benefit. This is especially true as to non-disclosure and confidentiality issues.
If your corporate contracting practice involves establishing a non-disclosure agreement (or confidentiality agreement or NDA) with a potential technology customer or supplier, and then later contracting under a different agreement for the actual business you wish to transact with the other party, now is the time to examine whether that practice is achieving its objectives. As recently learned by one technology supplier, in these cases the terms of the NDA may be rendered ineffective by the subsequent technology contract. iSentium v. Bloomberg Finance (S.D.N.Y. 2020).
iSentium, a technology vendor, entered into a pre-transaction NDA with Bloomberg, pursuant to which Bloomberg considered whether it was interested in iSentium’s artificial intelligence technology. The parties later entered into a technology contract covering Bloomberg’s purchase and use of iSentium’s technology. Both the NDA and the commercial contract included confidentiality terms. iSentium later sued Bloomberg for misappropriation of iSentium’s confidential information. The district court dismissed iSentium’s action based on a one-year limitations period stated in the commercial contract, despite that the NDA included no such limitation. In reaching its decision, the court highlighted the merger provision and precedence language in the commercial contract.
Read the Technology Agreement and Non-Disclosure Agreement
It is not uncommon for a company to have a pre-transaction non-disclosure agreement and a separate commercial agreement with a business partner. However, in many cases, the two agreements are not carefully read together and end up including inconsistencies that are not clearly addressed in the later commercial agreement. Sometimes the commercial agreement is wholly silent as to the existence of the NDA. Other times, the commercial agreement incorporates by reference the inconsistent NDA. In still other cases, like in iSentium, the commercial agreement expressly merges the inconsistent separate NDA.
Inconsistencies between the NDA and commercial agreement can reach matters such as, for example, specific confidentiality requirements, governing law, indemnification, limitations of liability, representations and warranties, disclaimers, and dispute resolution. Often, the inconsistencies may arise after having had to negotiate a suboptimal NDA, as discussed in an earlier blog post.
The inconsistencies frequently create ambiguities or vagueness that can impair or deny a party’s ability to enforce the deal or the rights it thought it had. They also can require significant expense and executive and management time to address, and they can unnecessarily occupy the energy and efforts of internal Legal resources to resolve.
Make Sure the Technology Agreement and Non-Disclosure Agreement are Consistent
There are several ways to address the problems created by inconsistencies between a separate technology agreement and non-disclosure agreement. A few include:
- Don’t be silent. Include in the technology agreement language explicitly stating that all inconsistencies, ambiguities, and conflicts between it and the NDA will be resolved in favor of the technology agreement – whether or not the NDA is integrated into or merged with the technology agreement. Identify silence on a matter in the NDA as a conflict.
- Set a clear path. Specifically provide in the technology agreement which confidential information is controlled by the terms and conditions of the technology agreement and call out which confidential information is governed by the NDA.
- Terminate the NDA. Ensure that the technology agreement addresses, in all respects, the relevant confidentiality and other terms, and then include language in the technology agreement that terminates the NDA’s prospective effect.
- Apply all terms. State in the technology agreement that its applicable terms (including, for example, limitations of liability, governing law, and dispute resolution) apply to the NDA and the exchange of confidential information under the NDA, despite anything different in the NDA.
This is not an exhaustive list of options. Which (and whether any) alternative works for you may depend on any number of factors or considerations.
Most importantly, to avoid a situation where (1) you have an NDA and a separate, later technology agreement covering the same subject matter, but (2) you might not be able to enforce the agreement you want to enforce due to conflicting or inconsistent terms, carefully read the two agreements and clearly and unequivocally state the resolution of the conflict or inconsistency in the later technology agreement.