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socrateaser
socrateaser, Attorney
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Experience:  Retired (mostly)
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In a One Way NDA, is it best to have a Liquidated Damages clause

Resolved Question:

In a One Way NDA, is it best to have a Liquidated Damages clause or leave it out?

The NDA would be mostly for new product concepts and ideas, amongst other things.
Submitted: 2 years ago.
Category: Business Law
Expert:  socrateaser replied 2 years ago.
Most NDAs are written with at least a tacit consideration of the Uniform Trade Secrets Act (Civil Code Sections 3426-3426.11). The law provides for injunctive relief, which means an order prohibiting further use of the disclosed information, actual damages and unjust enrichment for the misappropriation, and if the misappropriation was willful and malicious, then punitive damages may also be awarded.

In the alternative, if none of the above can be proved, then the court can order a reasonable royalty for the duration that the original NDA would have prohibited the release of information.

The above is considerably stronger than a straight liquidated damages clause, thus, liquidated damages is never used in an NDA.

Hope this helps.

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Customer: replied 2 years ago.
Please see the following clauses in the NDA below:

----------

2. General Terms.

2.1 Remedies. Recipient acknowledges that the Confidential Information has unusual and extraordinary value, and that the breach of any provision of this Agreement by Recipient will cause Disclosing Party great and irreparable harm, for which remedies available at law are inadequate. Therefore, without the necessity of proving actual damages or posting any bond, Disclosing Party shall be entitled to injunctive and other equitable relief, including, but not limited to, specific performance, to prevent a breach, continued breach or threatened breach of this Agreement. No remedy or election hereunder shall be deemed exclusive but shall be cumulative with all other remedies available at law or in equity.

2.2 Liquidated Damages. Recipient agrees to pay to Disclosing Party liquidated damages in the amount of $______ for each unauthorized disclosure or circumvention. The amount of such liquidated damages is agreed by the Parties as a reasonable amount to compensate Disclosing Party for losses to be incurred in the event of beach of this Agreement.

----------

Would it be best to remove the Liquidated Damages clause? If so, is that done by doing the following:

2.2. Liquidated Damages. Intentionally omitted.
Expert:  socrateaser replied 2 years ago.
Civil Code 1671(b) provides in pertinent part: "...a provision in a contract liquidating the damages for the breach of the contract is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made."

As can be seen from the code section, using a liquidated damages clause in an NDA opens the door to an argument over whether or not the amount of damages was "unreasonable under the circumstance existing at the time the contract was made."

Since no one typically uses liquidated damages language in a California NDA, it doesn't seem particularly useful, except as a means of scaring the other party into staying clear of a breach of contract. So, I don't know that I would necessarily take the language out. I would simply want the UTSA language "in."

FYI: I'm a California lawyer, if it makes any difference to you.

Hope this helps.

NOTICE: My goal here is to entertain while educating the public about the law. I hope my answer is useful and informative to you. During our conversation, the website may ask you to rate my answer. If you rate my answer lower than the middle rating, then the website retains your entire payment, and I receive nothing. It is entirely your choice as to how you rate my answer. However, because your payment to me is in the nature of a donation/gift, rather than as compensation for any services rendered, you are entitled to know how your rating affects the final distribution of your donation.

If you need to contact me again, please put my user id at the beginning of your question ("To Socrateaser"), and the system will send me an alert. Please Click the following link for IMPORTANT LEGAL INFORMATION. Thanks and best wishes!

Customer: replied 2 years ago.
Thank you! If for some people I just want to remove it...would it be done as follows?

2.2. Liquidated Damages. Intentionally omitted.
Expert:  socrateaser replied 2 years ago.
If you remove it, there is no reason to reference it at all. Just remove it entirely.

Hope this helps.
Customer: replied 2 years ago.
Yes, it does help. :) Thank you! Last question. The last page of the agreement has the following clauses:

2.2 Liquidated Damages.
2.3 Attorneys’ Fees.
2.4 Entire Agreement.
2.5 Amendment, Modification and Waiver.
2.6 Severability
2.7 Successors and Assigns.
2.8 Governing Law.


If I remove the Liquidated Damages clause entirely, would I just change the numbers of the clauses below as follows?

2.3 would change to 2.2
2.4 would change to 2.3
2.5 would change to 2.4
etc…

Expert:  socrateaser replied 2 years ago.
Yes, you can change the numbers.

Hope this helps.
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 34082
Experience: Retired (mostly)
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