Contractual Protection Of Confidential Information Under U.S. Law

Under U.S.law, confidential information which does not constitute trade secret may be protected by contract, subject to the exception that information shall not be removed from the public domain. Moreover, confidential clauses should be reasonable.Confidential clauses prevail in commercial contracts. When dealing with confidential clauses or obligations relating to secret information in various contracts, courts will adopt a'contextual reasoning'. Clauses which specifies that royalties shall be paid in consideration of the use of confidential information is commonly enforceable, even if such infromation has been in the public domain after the date of contract. Confidential clauses in connection with other intellectual property do not commonly result in violation of federal intellectual property policy. Confindential clauses contained in employment contract in terms of protecting the legitimate rights of the employer are enforeable, subject to the restriction that such clauses shall not prohibit employees from using ordinary skills and knowledge. As to online database use clauses under which the disclosure of data is prohibited, courts are likely to deem such clause unenforceable in that such clauses might be interpreted as an attempt to remove information from the public domain.Due to the stringent benchmark to qualify certain information as tradesecret, businesses often reach agreements to protect secret information so as to seek contractual remedies. Contractual remedies therefore have become a preferable alternative, which are more convenient and simple than remedies in tort. However, due to the restriction of the contract law and the limited remedies in contract, contractual remedies are comparatively weak remedies.The enforeablity of clauses in respect of confidential information is underpined by various policies. Protecting such information has the function of maintaining commercial morality, fostering innovation and respecting freedom of contract, while overprotection may result in restriction on competition and employees'mobility. The degrees of legal protection therefore should be according to how widely such information is known in certain industry. Contractual remedies shall therefore be available to confidential informaion except for those information which is known by substantial majority of people in the industry.