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INSIGHTS: Non-Disclosure Agreements and Government Contracting
This ALG insight addresses the issue of whether a contractor that does business with the Federal Government should attempt, where possible, to get a non-disclosure agreement (NDA) signed before disclosing any trade secrets to the Government and what steps a contractor should take to ensure protection of its trade secrets when contracting with the Government. When addressing this issue the contractor should keep in mind that they are contracting with the Government, not with the Government employee. There are Federal laws that apply to the disclosure of trade secrets by Government employees. In effect, these Federal laws trump the contractors attempt to enforce a NDA against a Government employee. However, the contractor must take certain actions outside of a proposed NDA to ensure the enforceability of these Federal laws designed to protect the disclosure of trade secrets.
Trade Secrets and Federal Law
The Economic Espionage Act of 1996 (18 USC 1831-39) defines trade secrets as all forms and types of financial, business, scientific, technical, economic or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if:
There is no general definition for proprietary information in the U.S. legal code. The Federal Acquisition Regulation (48 CFR 27.402 Policy) does, however, provide a definition.
"…contractors may have a legitimate proprietary interest (e.g., a property right or other valid economic interest) in data resulting from private investment. Protection of such data from unauthorized use and disclosure is necessary in order to prevent the compromise of such property right or economic interest, avoid jeopardizing the contractor’s commercial position, and preclude impairment of the Government’s ability to obtain access to or use of such data."
This regulation is intended to protect from disclosure outside the government proprietary information that is provided to the government during a bidding process. In addition, regulations applicable to the agencies of the Department of Defense require the Government to put a NDA in place with third parties before disclosing trade secret information in certain circumstances.
In order to protect a company's trade secrets when delivering information to the Federal Government, companies must comply fully with the requirements of applicable statutes and regulations found in the FAR and DFARS. The “Data Rights” regulations apply to trade secret or copyrightable material such as a company's technical data, including schematics, diagrams, designs or drawings, or processes as well as computer software. Generally, companies own the material created by its employees in the course of performing government contracts, including both technical data and computer software. When technology is developed under a government contract, the Government will typically acquire a license to use the technology. The scope of the Government's license to use or disclose the contractor's technology to others is generally determined by the source of the funding or can be negotiated for in the contract.
Three Federal laws apply to disclosure of specific types of proprietary information, especially disclosure by government personnel:
Protective Measures Required by the Contractor
Effective enforcement of laws governing unauthorized disclosure of proprietary or trade secret information generally requires that the owner of this information must have taken reasonable measures to safeguard it from unauthorized disclosure. Reasonable measures may include building access controls, escorting visitors, marking sensitive documents, non-disclosure agreements with employees or third-parties, and shredding material when no longer needed.
For additional information how to implement these protective measures and to insure your valuable information is not disclosed by the Federal Government contact:
This information is intended as a general overview and discussion of the subjects dealt with. The information provided here was accurate as of the day it was posted; however, the law may have changed since that date. This information is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. ALG|Attorneys is not responsible for any actions taken or not taken on the basis of this information. Please refer to the full terms and conditions on our website.
 Exemption 4 of the Freedom of Information Act (FOIA) exempts from mandatory disclosure information such as trade secrets and commercial or financial information obtained by the government from a company on a privileged or confidential basis that, if released, would result in competitive harm to the company, impair the government's ability to obtain like information in the future, or protect the government's interest in compliance with program effectiveness.
 State laws may also apply to unauthorized disclosure of proprietary or trade secret information.