Intellectual Property: Residuals

NDA

Intellectual Property: Residuals

Residuals are arguably the most contentious aspect of all the issues relating to intellectual property rights arising from NDAs. Residual clauses can be onerous, both legally and practically, and therefore should be reviewed with careful consideration. On one hand, the parties must temper the force of an NDA’s non-use restrictions with practical considerations regarding retention by the human mind. But on the other hand, the owner/discloser has an interest in protecting against purposeful abuse of residuals to circumvent the obligations and restrictions of the NDA.

Definitions

Residuals constitute a class of information that is not subject to the confidentiality obligations or non-use restrictions of the NDA due to its specific and unique nature:

Exemplar N14C-1

The term "residuals" means information of general application or nature in non-tangible form, including ideas, concepts, general know-how or general techniques contained therein, which may be retained by persons who have had access to the Confidential Information, without further reference to any materials that are written, stored in magnetic, electronic or physical form or otherwise fixed, provided however, that residuals shall not include Confidential Information retained intentionally for any purpose.

Exemplar N14C-2

“Residuals" shall mean Confidential Information of the Discloser which may be retained as mental impressions by authorized persons who have had access to the Confidential Information and which such authorized persons make no deliberate effort to retain. Authorized persons are only those employees or contractors of Recipient with a need to know the information for the limited purpose set forth above.

Exemplar N14C-3

Nothing in this Agreement is intended to or shall operate to preclude either party from using Residual Knowledge. The term “Residual Knowledge” means ideas, concepts, know-how or techniques related to the disclosing party’s technology that are retained by the unaided memories of the receiving party’s employees who have had or will have access to the Confidential Information other than access prohibited under this Agreement. An employee’s memory will be considered to be unaided if the employee has not intentionally memorized the Confidential Information for the purposes of retaining and subsequently using or disclosing it.

Exemplar N14C-4

Notwithstanding anything herein to the contrary, either party may use Residuals (as defined below) for any purpose or in any manner. The term "Residuals" means information in non-tangible form, which may be retained by persons who have had access to the Confidential Information, including ideas, concepts, know-how or techniques contained therein, without intentionally memorizing such information.

Exemplar N14C-5

The foregoing obligations shall not apply to any Proprietary Information of Discloser to the extent such Proprietary Information (a) becomes publicly available through lawful means; (b) was rightfully known by Recipient prior to the time of first disclosure by Discloser to Recipient; (c) is independently developed by Recipient without the use of Discloser’s Proprietary Information as reasonably supported by documentary evidence; (d) is disclosed to Recipient from a third party who does not owe a confidentiality obligation to Discloser with respect to such Proprietary Information; or (e) is retained in the unaided memory of a person having authorized access thereto, provided that a person’s memory is “unaided” if the person has not intentionally memorized the Proprietary Information for the purpose of retaining and subsequently using or disclosing it.

Exemplar N14C-6

The term “Residuals” means any information retained in the unaided memories of a party’s Representatives who have had access to the other party’s Confidential Information pursuant to the terms of this Agreement. A person’s memory is unaided if the person no longer has access to the Confidential Information and has not intentionally memorized the Confidential Information for the purpose of retaining and subsequently using or disclosing it. Neither party has any obligation to limit or restrict the assignment of such persons or to pay royalties for any work resulting from the use of Residuals.

Exemplar N14C-7

Confidential Information shall not include information which: (a) is previously rightfully known to the Receiving Party without restriction on disclosure; (b) is or becomes, from no act or failure to act on the part of the Receiving Party, generally known in the relevant industry or public domain; (c) is disclosed to the Receiving Party by a third party as a matter of right and without restriction on disclosure; (d) represents general conceptual information (as compared to, e.g., specific technical or financial information, specific offerings or specific product ideas) which is incidentally retained in the unaided memories of persons who have had access to the Confidential Information; or (e) is independently developed by the Receiving Party without use of the Confidential Information.

Exemplar N14C-8

The term “Residuals” means any information retained in the unaided memories of the Recipient’s employees who have had access to the Discloser’s Confidential Information pursuant to the terms of this NDA. An employee’s memory is unaided if the employee has not intentionally memorized the Confidential Information for the purpose of retaining and subsequently using or disclosing it.

Exclusions

The definition of residuals may specifically exclude information that is intentionally or purposely memorized:

Exemplar N14C-9

Recipient and its Associates, if any, may use and disclose any Residuals for any purpose, except that no license to any Discloser patent or copyright is granted under this Section. Residuals means disclosed confidential information retained in the unaided memory of those individuals within the scope of Recipient’s obligations under this Agreement who no longer have access to the disclosed confidential information. However, Residuals does not include any detailed financial or personnel data, or the identity of the Discloser, or any information intentionally retained in the memory of an individual for a specific use or purpose.

Exemplar N14C-10

The terms of confidentiality under this Agreement shall not be construed to limit either the Disclosing Party or the Receiving Party’s right to independently develop or acquire products without use of the other party's Confidential Information. Further, the Receiving Party shall be free to use for any purpose the residuals resulting from access to or work with the Confidential Information of the Disclosing Party, provided that the Receiving Party shall not disclose the Confidential Information except as expressly permitted pursuant to the terms of this Agreement. The term "residuals" means information of general application or nature in non-tangible form, including ideas, concepts, general know-how or general techniques contained therein, which may be retained by persons who have had access to the Confidential Information, without further reference to any materials that are written, stored in magnetic, electronic or physical form or otherwise fixed, provided however, that residuals shall not include Confidential Information retained intentionally for any purpose.

Exemplar N14C-11

Further, a Receiving Party shall not be in violation of this Agreement due to the use of any Residuals (defined below) resulting from authorized access to or work with Confidential Information of the Disclosing Party. The term “Residuals” means information in non-tangible form which may be incidentally retained in the unaided memory of Representatives of the Receiving Party who have had access to the Confidential Information, so long as such persons have not studied the information for the purpose of replicating the same from memory; provided, however, that in no event shall Residuals include any information that such persons know or a reasonable person would know was Confidential Information of the Disclosing Party. Nothing in this Section shall be deemed to grant any right, title or interest in or to any patents or copyrights of the Disclosing Party. Neither party shall have any obligation to limit or restrict the assignment of such persons or to pay royalties for any work resulting from the use of Residuals.

Right to Use, But Still Confidential

Although the residuals clause supports an exemption to the non-use restrictions of an NDA, such a clause usually does not exempt residuals from the definition of “Confidential Information” otherwise protected from unauthorized disclosure under the NDA.

Exemplar N14C-12

Further, each party recognizes that the other party may in the future develop or purchase products or services related to or similar to the subject matter of Confidential Information disclosed under this Agreement. Accordingly, Recipient may use Residuals for any purpose, including use in the acquisition, development, manufacture, promotion, sale, or maintenance of products or services; provided that such party shall maintain the confidentiality of Confidential Information as provided herein; and provided further that this right to Residuals does not represent a license under any intellectual property and/or proprietary rights of Discloser.

Exemplar N14C-13

The Receiving Party shall be free to use for any purpose the residuals resulting from access to or work with the Confidential Information of the Disclosing Party, provided that the Receiving Party shall not disclose the Confidential Information except as expressly permitted pursuant to the terms of this Agreement. The term "residuals" means information in intangible form, which is retained in memory by persons who have had access to the Confidential Information, including ideas, concepts, know-how or techniques contained therein. The Receiving Party shall not have any obligation to limit or restrict the assignment of such persons or to pay royalties for any work resulting from the use of residuals. However, this sub-paragraph shall not be deemed to grant to the Receiving Party a license under the Disclosing Party’s copyrights or patents.

Exemplar N14C-14

Either party may use Residuals for any purpose, including, for example, use in the development, manufacture, promotion, sale and maintenance of its products and services. Subject to the terms and conditions of this Agreement, the receiving party's employees shall not be prevented from using Residual information as part of the employee's skill, knowledge, talent, and/or expertise on future projects.

Exemplar N14C-15

Recipient shall be free to use the Residuals provided that the person using the Residuals is unaware that such information is the Confidential Information of the Discloser protected by this Agreement. Such right is subject to the foregoing obligation to avoid disclosure, publication, and dissemination of the Confidential Information, and is also subject to any applicable patent, copyright, maskwork, or trademark rights of the Discloser.

Exemplar N14C-16

Either Party shall be free to use for any purpose the residuals resulting from access to or work with such Confidential Information, provided that such Party shall maintain the confidentiality of the Confidential Information as provided herein.

Restrictions

As with any class of information that is exempted from one or more of the general restrictions in an NDA, the scope of the class should be subject to reasonable restrictions to avoid abuse.

No License

Recognizing residuals as a special category of information that is exempt from an NDA’s non-use restrictions does not mean that any license, express or implied, to use such information is granted. Indeed, the parties may wish to use language as set forth in the following exemplars to preclude any implied grant or waiver of rights:

Exemplar N14C-17

Notwithstanding anything herein to the contrary, either party may use Residuals for any purpose, including without limitation use in development, manufacture, promotion, sale and maintenance of its products and services; provided that this right to Residuals does not represent a license under any patents, copyrights or other intellectual property rights of the Discloser.

Exemplar N14C-18

The receiving party’s use of Residual Knowledge is subject to any valid patents, copyrights, trade secret and/or semiconductor mask work rights of the disclosing party. Nothing in this Agreement shall be construed as restricting the right of a party to acquire, license, develop, manufacture or distribute any technology that is similar to any technology disclosed hereunder that performs the same or similar functionality or to market or distribute such similar technology in addition to or in lieu of the technology disclosed hereunder and/or any portion(s) thereof.

Exemplar N14C-19

Notwithstanding anything herein, the receiving party will have the right to use generalized concepts and general ideas that are retained in the unaided memory of an ordinary person skilled in the art, not intent on appropriating Confidential Information as a result of his or her review, evaluation or testing of Confidential Information. The foregoing shall not, however, be deemed to grant any license under any patents or copyrights.

Exemplar N14C-20

Notwithstanding anything herein contained to the contrary, each party shall have the right to refuse to receive any Confidential Information, and the right to use Residuals (as defined below) for any purpose, including, but not limited to use in independent development, manufacture, promotion, sale and maintenance of its products and services, without paying any charge to the Disclosing Party, provided that each party shall maintain the confidentiality as provided herein, and that the right to said Residuals does not represent a license under any patent right, utility model right, design right, copyright or trademark right of the Disclosing Party.

Exemplar N14C-21

Nothing contained in this Agreement nor the conveying of Information hereunder shall be construed as granting or conferring any rights by license or otherwise in any trademark, patent, copyright, or other Information, or other intellectual property; provided, however, that an individual who has used or seen Information pursuant to this Agreement shall not be prohibited from using or disclosing Residuals (as defined below). For purposes of this Agreement, “Residuals” means information in intangible form retained in the memory of an ordinary person skilled in the art who has had access to Information, including all ideas, concepts, and understandings related thereto, but not as a result of any deliberate effort to memorize the Information, ideas, concepts and understandings. No license is granted for the use or disclosure of Residuals under any patent, trademark or copyright. The Providing Party shall remain the sole owner of all Information which it has provided to the Receiving Party and all Information which is developed solely by it or on its behalf whether before or after the effective date of this Agreement. None of the Information which may be disclosed or exchanged by the parties shall constitute any representation, warranty, assurances, guarantee or inducement by either party to the other of any kind, and in particular, with respect to the non-infringement of trademarks, patents, copyrights, mask protection rights or any other intellectual property rights or other rights of third persons or of either party.

Exemplar N14C-22

The Receiving Party shall be free to use for any purpose the Residuals resulting from access to or work with the Confidential Information of the Disclosing Party. "Residuals" means information retained in unaided memory by persons who have had access to the Confidential Information, including ideas, concepts, know-how or techniques contained therein. The Receiving Party shall not have any obligation to pay royalties for work resulting from the use of Residuals. However, this clause shall not be deemed to grant to the Receiving Party a license under the Disclosing Party’s copyrights or patents.

Exemplar N14C-23

Either party may use Residuals for any purpose, including, for example, use in the development, manufacture, promotion, sale and maintenance of its products and services; provided that this right to use Residuals does not result in or amount to a license under any patents, copyrights, trademarks, or maskworks of the disclosing party. The term “Residuals” means any information retained in the unaided memories of the receiving party’s employees who have had access to the disclosing party’s Confidential Information pursuant to the terms of this Agreement. An employee's memory is unaided if the employee has not intentionally memorized the information for the purpose of retaining and subsequently using or disclosing it to a third party. Subject to the terms and conditions of this Agreement, the receiving party's employees shall not be prevented from using Residual information as part of the employee's skill, knowledge, talent, and/or expertise on future projects.

Exemplar N14C-24

"Residuals" shall mean Confidential Information of the Discloser which may be retained as mental impressions by authorized persons who have had access to the Confidential Information and which such authorized persons make no deliberate effort to retain. Authorized persons are only those employees or contractors of Recipient with a need to know the information for the limited purpose set forth above. Recipient shall be free to use the Residuals provided that the person using the Residuals is unaware that such information is the Confidential Information of the Discloser protected by this Agreement. Such right is subject to the foregoing obligation to avoid disclosure, publication, and dissemination of the Confidential Information, and is also subject to any applicable patent, copyright, maskwork, or trademark rights of the Discloser.

Exemplar N14C-25

All Information disclosed under this Agreement by Provider shall be used by Recipient only for the purpose set forth above. Notwithstanding anything to the contrary in this Agreement, but subject to applicable copyright and patent rights of the parties, each party shall be free to use the "Residuals" from any Information and any ideas and/or concepts contained therein for any purpose, including use in the development, manufacture, marketing and maintenance of products and services. The term "Residuals" means information in non-tangible form, including ideas, concepts, know-how or techniques which may be retained in the minds of persons who have had access to the Information, and who have made no effort to refresh their recollection in anticipation of or in conjunction with the use of said Residuals. Further, neither party shall intentionally memorize the Information so as to reduce it to a non-tangible form for the purpose of creating a Residual. However, the foregoing shall not be deemed to grant either party a license under the other party's copyrights or patents.

Exemplar N14C-26

Further, the Recipient shall be free to use for any purpose the residuals resulting from access to or work with the Evaluation Materials of the Provider, provided that the Recipient shall not disclose the Evaluation Materials which are not residuals except as expressly permitted pursuant to the terms of this Agreement. The term “residuals” means information in intangible form, which is retained in memory without extraordinary effort by persons who have had access to the Evaluation Materials in the normal course of their review of the Evaluation Materials, including ideas, concepts, know-how or techniques contained therein. However, this paragraph shall not be deemed to grant to the Recipient a license under the Provider’s copyrights or patents.

No Employee Work Restrictions

The parties may also wish to make clear that employees of a party are not to be considered “tainted” by exposure to the other party’s confidential information and that there should be no restrictions on what they can do going forward as employees, including using residuals:

Exemplar N14C-27

It is expressly understood and agreed that access to INFORMATION hereunder shall not preclude an individual who has seen such INFORMATION for the purposes of this Agreement from working on future projects for the receiving party which relate to similar subject matters, provided that such individual does not make reference to tangible INFORMATION and does not intentionally copy the substance of the INFORMATION.

Exemplar N14C-28

An individual who has seen Information under this Agreement shall not be precluded from working on projects for the receiving party that relate to similar subject matters, provided that the individual does not use or make reference to the Information and did not copy the substance of the Information during the Confidentiality Period. Furthermore, nothing contained herein shall be construed as restricting receiving party from disclosing or using any general learning, skills or know-how developed by its personnel under this Agreement, if a person of ordinary skill in the relevant area would not regard such actions as a disclosure or use of disclosing party’s Information.

Exemplar N14C-29

Neither party shall have any obligation to limit or restrict the assignment of persons who retain residuals in their memory or who have had access to the Confidential Information or to pay royalties for any work resulting from the use of residuals.

Exemplar N14C-30

Access to the Disclosing Party’s Information hereunder shall not preclude an individual employee of the Receiving Party who has seen such Information for the purposes of this Agreement from working on future projects that relate to similar subject matters, provided that such individual employee does not make reference to the Information and does not copy the Information during the Confidentiality Period or refer to notes made as a result of access to such Information. Furthermore, nothing contained herein shall be construed as preventing employees of either party who had access to Information from using that information retained as a part of their general skill, knowledge, talent and expertise. Notwithstanding the foregoing, this Agreement shall not restrict Receiving Party’s right to develop systems, software, components, products and/or items similar or related in functionality to those of Disclosing Party, provided that Receiving Party does so without use of or reference to Information and without violating any provision of this Agreement.

Exemplar N14C-31

Further, the Recipient shall be free to use for any purpose the residuals resulting from access to or work with the Evaluation Materials of the Provider, provided that the Recipient shall not disclose the Evaluation Materials which are not residuals except as expressly permitted pursuant to the terms of this Agreement. The term “residuals” means information in intangible form, which is retained in memory without extraordinary effort by persons who have had access to the Evaluation Materials in the normal course of their review of the Evaluation Materials, including ideas, concepts, know-how or techniques contained therein. The Recipient shall not have any obligation to limit or restrict the assignment of such persons or to pay royalties for any work resulting from the use of residuals.

Exemplar N14C-32

Notwithstanding the foregoing, the Recipient shall be free to use for any purpose the residuals resulting from access to or work with the Discloser’s Information, provided that the Recipient shall not disclose the Information except as expressly permitted pursuant to the terms of this Agreement. The term "residuals" means information retained in the unaided memories of the Recipient’s employees who have had access to the Discloser’s Information pursuant to the terms of this Agreement. An employee’s memory is unaided if the employee has not intentionally memorized the information for the purpose of retaining and subsequently using it for any purpose or disclosing it to a third party. Subject to the terms of this Agreement, the Recipient’s employees shall not be prevented from using residuals as part of the employees’ skill, knowledge, talent, and/or expertise on future projects.

Exemplar N14C-33

Accessing to Confidential Information hereunder shall not preclude an individual who has seen such Confidential Information for the purposes of this Agreement from working on future projects, researches, or developments for the receiving party which relate to similar subject matters, provided that such individual does not make reference to the Confidential Information and does not copy the substance of the Confidential Information during the term of the Confidential Period. Furthermore, nothing contained herein shall be construed as imposing any restriction on the receiving party's disclosure or use of any general learning, skills or know-how developed by the receiving party's personnel under this Agreement, if such disclosure and use would be regarded by a person of ordinary skill in the relevant area as not constituting a disclosure or use of the Confidential Information.

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Intellectual Property: Residuals

NDA

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