Does an NDA Alone Protect Your Trade Secrets?

An NDA is a contract, and a contract binds only the people who signed it. That single fact explains most of what an NDA can and cannot do for trade secret protection. It gives you a breach of contract claim against a signatory who discloses, and it is strong evidence that you took reasonable measures to keep the information secret. It does nothing against a competitor who never signed, nothing against an employee who was never asked, and surprisingly little if the agreement itself was drafted with terms that undercut the trade secret claim. The NDA trade secret relationship is one of support, not substitution, and our trade secret protection practice spends as much time fixing NDAs as drafting them.

What an NDA does well

Three things. First, it creates a duty of confidence, which is the hook for a misappropriation claim when the recipient uses or discloses the information. Under the Defend Trade Secrets Act and state law, disclosure or use by someone who owed a duty to maintain secrecy is misappropriation; the NDA is the cleanest proof that the duty existed. Second, it is reasonable-measures evidence. Courts look for NDAs with employees, contractors, vendors, and partners as a baseline, and the absence of one with a person who had access is often fatal. Third, it gives notice. A recipient who signed cannot later claim they thought the material was free to use.

Where NDAs quietly fail

The definition is too narrow or too broad

A definition of confidential information that lists specific categories will not cover the category you forgot. A definition that covers “all information disclosed” is sometimes held unenforceable as overbroad, or invites the argument that the company cannot have treated everything as secret. The workable approach is a general definition tied to the nature of the information, with illustrative categories and the standard exclusions (information that is public, already known to the recipient, independently developed, or received from a third party without restriction). Each exclusion should put the burden on the recipient to prove it applies.

The marking requirement nobody follows

Many NDAs provide that only information marked “confidential,” or confirmed in writing within a set number of days after oral disclosure, is protected. That clause is fine if the company actually marks and confirms. If it does not, the NDA affirmatively says the unmarked material is not confidential, which a defendant will quote back. Either remove the marking requirement or build a process that complies with it. Our post on reasonable measures to protect trade secrets covers marking in a broader program.

A fixed term

Mutual NDAs between businesses often say confidentiality obligations last two, three, or five years after disclosure. For ordinary business information that is reasonable. For trade secrets it can be harmful: several courts have treated a fixed confidentiality term as evidence that the owner did not intend to keep the information secret beyond that date, which means the trade secret may expire with the contract. The fix is a two-tier term: a fixed period for confidential information generally, and an obligation that continues for trade secrets as long as they remain trade secrets under applicable law.

Residuals clauses

A residuals clause lets the recipient use whatever information its employees retain in unaided memory. Large counterparties ask for it routinely. It is a license to use your trade secrets, limited only by the recipient’s memory, and it should be refused for any disclosure that includes genuine secrets, or at minimum narrowed to exclude specifically identified categories.

No use restriction

An NDA that prohibits disclosure but says nothing about use allows the recipient to keep the information in-house and build on it. Every NDA should limit use to the stated purpose of the disclosure.

The whistleblower immunity notice

Since 2016, the Defend Trade Secrets Act has provided immunity to employees, contractors, and consultants who disclose a trade secret in confidence to a government official or an attorney solely to report a suspected violation of law, or in a sealed court filing. Employers must give notice of that immunity in any contract with an employee, contractor, or consultant that governs the use of trade secrets or confidential information. An employer that omits the notice cannot recover exemplary damages or attorney’s fees under the DTSA against that individual, although the underlying claim and state-law remedies remain. The notice can be a short paragraph in the agreement or a cross-reference to a policy that contains it. Many NDAs and employment agreements drafted before 2016, and many copied from older templates since, do not have it. Check yours.

NDAs, non-solicits, and non-competes are different tools

An NDA restricts what the recipient can disclose and use. It does not stop a former employee from taking a job with a competitor or from calling your customers. Those are the functions of non-competition and non-solicitation agreements, and the law on them is unsettled and varies by state. As of this writing, there is no federal ban on non-competes in effect; the FTC’s 2024 rule was set aside in court, a history covered in our post on the FTC and non-competes. Among the firm’s jurisdictions, Virginia and the District of Columbia both restrict non-competes for employees below an earnings threshold, and New York has no general ban but applies a reasonableness test. A company that cannot use a non-compete relies more heavily on the NDA and on the trade secret program behind it, which raises the stakes on getting the NDA right.

What an NDA cannot do for trade secret protection

Even a perfect NDA does not make information a trade secret. The information must still have value because it is secret, and the company must still take the other reasonable measures: access controls, policies, offboarding, and so on. The test is explained in our post on what qualifies as a trade secret. An NDA with no program behind it is a contract claim against one person; an NDA inside a program is a trade secret claim against everyone who touches the information. Our contract drafting and review team reviews NDA templates against the points above and against the specific information a client expects to share.

If your NDAs were drafted from a template years ago, a consultation with Capitol Law Partners can identify the clauses that weaken your position and replace them. Schedule a consultation.

This article is for informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by this communication.

Attorney Cagatay Ersoy. Practical strategy for founders, investors, and growing companies.

Need help with this topic? See our trade secret agreements and policies page or schedule a consultation.