Restrictive covenants can sometimes be controversial, but they are often necessary for the protection of a business’s intellectual property. Trade secrets, in particular, are often vulnerable not only due to the risk of employee disclosures but also because of what clients, customers or even vendors might discourse to the public.
A vendor familiar with the chemicals ordered by a manufacturing company, for example, could provide details to a competitor that might allow them to reverse engineer a certain manufacturing process. Many businesses, therefore, integrate non-disclosure agreements into their contracts with customers, clients and other businesses. Most of California’s restrictions on nondisclosure agreements specifically apply to employment contracts, not other business agreements.
How can companies respond to a violation of a non-disclosure agreement in a business contract?
Documenting the violation
It will be crucial for a business to have evidence of the infraction if there is any intention to take legal action. Particularly when a violation occurs on social media, where someone could delete a post, creating records of the violation as soon as it occurs and in as much detail as possible will be important for the protection of a company with vulnerable trade secrets.
Providing notice of the violation
Once there is proof of how another party that signed a contract with the business violated the nondisclosure clause included in the contract, the business can send them a formal notice of the infraction, as well as a request for the payment of any penalty imposed by the contract. Doing so may prevent future violations or may prompt the other party to correct the matter to the best of their ability. Depending on the nature of the violation and the impact it has already had on the business, the organization may then determine whether or not it wants to pursue legal action.
Asking the courts for support
Evidence ranging from the original contract to the letters submitted to the party violating the agreement can help convince the civil courts that one party breached the nondisclosure agreement in a business contract. At that point, the terms of the contract will strongly influence what the courts will do. If the contract outlines specific penalties, the courts may enforce those penalties. Other times, the business initiating litigation could seek damages based on the impact that the violation of the nondisclosure agreement has had on the company’s operations.
Understanding how to react when someone violates a non-disclosure agreement can be as important as integrating the right protections in the business contracts initially. Seeking legal guidance can be valuable in both scenarios.