The Scope of your Confidential Information: Too Broad, Too Narrow, or Just Right?

July 05, 2016

For drafters of asset or share purchase agreements, it’s useful to think about the effects of the representations you are making.

In our office, and no doubt in many others, the non-disclosure agreement (NDA) is considered a stepping stone into the world of contracts because of their straightforwardness. The purpose of an NDA is to protect information you want to keep confidential. Just like how information can exist in many different forms, the NDA can be applied to a variety of contexts, be it between companies, employers and employees, or laypersons.

But with great applicability comes the question of scope—what is appropriate?

Pastor v. Chen (2002) (BCPC) is a good example of where too general of an NDA can open you up to problems. The claimant in this case, Amando Pastor, was just a teenager when he developed the moves for his own version of “La Rueda,” a Cuban salsa dance, by incorporating a complex group element. He copyrighted his version of the dance, which he called “The Wheel of the World,” years later as a dancing instructor in Vancouver.

Not soon after Pastor began teaching his dance, the defendant, Roger Y. Chen, became his student. Upon reaching a level of proficiency to perform publicly, Pastor made Chen and all his other dancers sign a confidentiality agreement that reads as follows:

“I, Roger Y. Chen, willingly agree to not divulge, publicly perform or teach the artistic work that I have had access to as a performer/student … without the Director Amando Pastor’s, permission … everything I have been taught by him is confidential, and is his property, for which he holds copyrights.”

While at first glance there is nothing wrong with such a succinct NDA, upon a closer look some problematic interpretive gaps make themselves apparent. This agreement lacks a clear definition of what exact “artistic work” Pastor retains the rights to. The intimation that anything he taught his students is his property is an incorrect one, because there are many dance moves that are considered general knowledge. Pastor was even aware of this distinction, as “when asked if he ever told his performers which moves were his, his answer was that he did not make it clear because he wanted to keep them to himself.”

For a confidentiality agreement to work, a clear disclosure provision is just as essential as a clear definition of confidential information. So, when Chen was discovered to be teaching dance routines similar to Pastor’s, he was easily able to use this inconsistency as an argument. He said that the moves he had been teaching were ones already in the public domain, not Pastor’s own.

Ultimately the judge found that this was not the case. Regardless, if the definition of confidential information had been more explicit, or even if a non-competition clause had been included to diversify the agreement, the claimant could have better protected his property. To work best for everyone involved, an NDA has to have a clear scope and specificity in outlining what exactly is confidential and how confidentiality should be properly performed.

On the other hand, being too specific can also be problematic, as can be seen in Minera Aquiline Argentina SA v. IMA Exploration Inc. and Inversiones Mineras Argentinas S.A. (2006) (BCSC).

The defendant had been scoping out a plot of land to buy in Argentina, and received geological data from the seller during site visits and tours, which required signing a confidentiality agreement. The plot in question was later purchased by the plaintiff, while the defendant used the data received to discover a large metals deposit elsewhere. Whether the data was considered confidential or not was the crux of this case. The definition of confidential information was as follows:

”… financial, operating, technical, geological and other information (the “Confidential Information”) concerning the Project … will include all communications, whether written, electronically stored or delivered, or oral, of any kind, between the Participants relating to the Project, any observations made by Reviewer during site visits or tours, and any and all information, reports, analyses, studies, compilations, forecasts or other materials prepared by Reviewer relating to the Project which contains or otherwise reflects such information.”

This is a much more comprehensive definition of confidential information, but still, the defendant was able to argue that since the data wasn’t explicitly listed, it wasn’t considered confidential. The judge resolved that the data was considered confidential information because the definition included “the words ‘relating to’ and ‘concerning’. This specific wording cast the net of the definition wide enough to cover unlisted information. So, in a sense, the definition was actually just broad enough to serve its purpose effectively here.

This case is one that shows there is only so much that can be done to cover your bases, so it’s important that your contract can hold up under scrutiny.

One of the most effective steps you can take when drafting an NDA is to be cognizant of covering what is most important to the protection of your business - and define it.

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