This from reader Chris Lemens:

This bugs me. I see a lot of nondisclosure agreements. A typical definition of the information protected by such an agreement includes a notion that the information is “confidential or proprietary.” The “proprietary” part just seems wrong to me. So what if the information is owned as property? A company’s website is owned as property, but it shouldn’t be protected as “confidential information” under a nondisclosure agreement.

What do you think?

Black’s Law Dictionary defines proprietary as meaning “1. Of or relating to a proprietor {the licensee’s proprietary rights}. 2. Of, relating to, or holding as property {the software designer sought to protect its proprietary data}.”

I see it used three different ways in a definition of Confidential Information. First, it’s used on its own, without confidential:

As defined herein, “Confidential Information” means information or material proprietary to either party, whether written or oral, tangible or intangible, relating, but not limited to, the parties’ business and products.

Second, it’s used in definitions that encompass confidential information or proprietary information:

Confidential Information ” means information, whether or not originated by the Employee, that relates to the business or affairs of the Company, its affiliates, clients or suppliers and is confidential or proprietary to, about or created by the Company, its affiliates, clients, or suppliers.

With respect to these two uses, I agree with Chris—why should all information, whether confidential or not, constitute confidential information for purposes of an NDA?

Third, you have those definitions that encompass information that is confidential and proprietary:

“Confidential Information” means information delivered to any Purchaser by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to any of the Loan Documents that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by such Purchaser as being confidential information of the Company or such Subsidiary … .

Rather than being overbroad, this approach might be too narrow. A disclosing party could conceivably disclose information that isn’t proprietary but is nevertheless information that it would want to keep confidential, for example information that had been disclosed to it under an NDA.

So my default mode would be to omit proprietary from a definition of Confidential Information.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

13 thoughts on ““Proprietary””

  1. Defining Confidential Information as information that is confidential is circular. A very typical construction is to define Confidential Information as covering all information provided by or on behalf of one party (Discloser) to the other party or its representatives (Recipient), and then to specify exclusions that carve out information that is not confidential (or not proprietary). For example, the defined term would exclude information that is in the public domain through no fault of Recipient and information developed independently by Recipient.

    I agree that information can be proprietary and not confidential, or confidential and not proprietary. The provision should focus on the confidential nature of the information, not IP rights.

    One common mistake is to excluded from the defined term information that is required to be produced to government authorities or under subpoena. Those should be an exception to the covenant proscribing disclosure to third parties. The fact that information has to be produced to authorities (possibly with confidential treatment undertakings) should not take that information totally outside the defined term and excuse the Recipient from otherwise limiting its disclosure and use.

  2. Jim: As I noted in MSCD 5.3, there’s nothing problematic about using in a definition the term being defined.

    Sure, defining Confidential Information as information that’s confidential would be circular, but that’s never what the definition is. It will also say whose information it is, and to whom it’s being disclosed. And of course you’d expect the definition to include the standard carveouts, as you suggest.


  3. Please don’t use “public domain” like that (or at all in your NDA). Public domain has a particular meaning that almost never has anything to do with triggering an exception to the definition of confidential information. It’s a copyright term. Say something like “available to the public.” Otherwise, your exception only applies if the information is no longer protected by copyright (which would likely be 70 years after the death of the creator).

  4. I agree with Chris and Ken, and with randomjohn, and Jim makes a good point about structuring the clause dealing with disclosure to govt bodies.

    The “proprietary” wording in some US CDAs has always puzzled me.

  5. I really never understood the insistence on using proprietary in a CI definition or why others insist on including a long list of information that could be confidential (i.e. files, documents, software, etc.).

    The important aspect of confidential information is that it is confidential and disclosed in such a way that the other party can readily identify it as confidential. The marking requirement may not appear to be a problem for short term contracts where the NDA has a very short term (say <1year) and survival is also very short. But when CI obligations survive for a long period of time, the disclosure requirement becomes paramount to identifying information that needs to be protected as CI.

  6. How about simply defining confidential information as any information (i) that the disclosing party makes reasonable efforts to preserve in confidence and (ii) that is not within an exclusion stated in this Agreement?

  7. Here’s what I generally understand people to be thinking about “proprietary:” information that the receiving party would not otherwise have obtained but for the confidential information. A good example is something like demographic or statistical information. It could also be something like a published or unpublished patent application. It could even be something as simple as the floor plan of building or bank, the location of security cameras, etc.

    In those cases, the information may not be “confidential” or “trade secret” but that doesn’t mean that the receiving party should be able to use the information for their own purpose, for the detriment of the other party, or for someone else.

    The plain English justification might look like this: I’m giving this information (or access) to you for my benefit, not yours, and I don’t care if it doesn’t meet someone’s definition of confidential or trade secret because you wouldn’t have it.

  8. The main problem with using Confidential for us is that the we deal with multiple classified US Government contracts and the word “Confidential” has a specific meaning in the national security world. We cannot use that word without a lot of confusion resulting from its mis-use so we use Proprietary only and insist that all of our NDAs use proprietary only. The only other solution we had was to call it business confidential or add some other modifier, but this makes it open to even more interpretation. Any suggestions or thoughts?

  9. Mike: If a drafter wants to convey the meaning you suggest, they’d be advised to articulate it rather than groping at the meaning with proprietary.

    Gene: You can use whatever word you want as long as you make it clear in the contract what that word means.


  10. D.C.:

    Not bad. Two points (of which you are probably aware):

    First, I like to nail down the part of the disclosure where the other side hands me information. I like to limit who it comes from—someone acting for the other party, so as to exclude situations where we are the one who obtains it on the other party’s behalf.

    Second, putting the requirement that the information not be subject to one of the exception into the definition of confidential information probably reverses the burden of proof. Most courts that I’ve heard about say that the plaintiff fulfills the prima facie case by showing that the information is within the original definition and that the defendant has to plead and maybe prove the exception. Since the exceptions tend to be things that the defendant knows (from whom they got the information) or something where the plaintiff would have to prove a negative (this is not public information), that makes some sense (at least as a matter of pleading and coming forward with at least some evidence). I don’t know what your construction would do to that.


    As an example: A published patent application is public. Sure, you gave it to them for convenience, but they can go get it themselves. Why would you care if they kept the copy you gave them?


    You might try nonpublic. (Yeah, it ought ot have a hyphen, but that’s a pain to type every time and you’re creating a defined term.)


  11. Chris: Garner’s Modern American Usage says “With few exceptions, the prefix non- does not take a hyphen unless it is attached to a proper noun {non-European}.” Please stay behind after class and write that out 100 times. Ken

  12. Chris, about your two points:

    1. I typically use disclosure period to specify just what confidential information is protected under the Agreement.

    2. Agreed – most nondisclosure agreements expressly put the burden of showing an exclusion on the receiving party. (My usual language says, (ii) is not shown to be within an exclusion stated in this Agreement; I typed it from memory and evidently left that part out.) This makes sense – the disclosing party is in the best position to show that it made reasonable efforts to protect confidentiality, but it will have a hard time proving the absence of public disclosures, etc. So the agreement will usually require the receiving party to show that a public disclosure, etc., has happened. (What the receiving party might not want to agree to is a requirement that such a showing be made by documentary evidence.)

  13. Be careful if the nondisclosure agreement requires the return of the confidential information upon request of the discloser. The recipient needs an archival copy in order to benchmark what was indeed received in the first place. Otherwise, if the recipeint wishes to later disclose some information arguably embraced by the confidential information, how can he make an assessment of whether the exceptions apply?


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