Nondisclosure Agreements and Confidential Information

By Hank FasthoffJuly 6, 2026

Businesses exchange pricing, financial data, customer information, product plans, source code, and deal terms before they decide whether to proceed with a transaction. A nondisclosure agreement, commonly called an NDA, sets the permitted use of that information and the conditions for sharing it with employees, advisers, affiliates, and other representatives.

Contract protection and trade secret protection cover different ground. An NDA can protect confidential information that falls short of the statutory definition of a trade secret, while trade secret law can protect qualifying information without an NDA. A useful agreement accounts for both.

Contract Rights and Trade Secret Rights

The Texas Uniform Trade Secrets Act, commonly called TUTSA, protects information when its owner takes reasonable measures to keep it secret and the information derives independent economic value from secrecy. Business, technical, financial, and customer information can qualify, but a confidential label alone establishes neither element.

Texas Civil Practice and Remedies Code Section 134A.007 preserves contractual remedies whether or not the protected information qualifies as a trade secret. An NDA can therefore define a broader class of confidential information and support a contract claim based on unauthorized use or disclosure. TUTSA displaces conflicting Texas tort and restitution claims based on trade secret misappropriation, so the contract claim often provides a separate basis for relief.

The federal Defend Trade Secrets Act, commonly called the DTSA, authorizes a civil action when the trade secret relates to a product or service used in, or intended for use in, interstate or foreign commerce. Federal law preserves other federal and state remedies for trade secret misappropriation under 18 U.S.C. § 1838. A dispute may therefore support contract, TUTSA, and DTSA claims, subject to the elements and limits of each claim.

One Way and Mutual Agreements

A one way NDA protects information disclosed by one party. This structure can fit a product demonstration, acquisition inquiry, vendor evaluation, or other relationship in which only one side will disclose protected information.

A mutual NDA imposes duties on both parties because each side expects to disclose information. Mutuality concerns the direction of disclosure, not identical risk. One party may disclose source code and security architecture while the other shares customer data or acquisition terms, so the agreement can impose different handling rules for different categories.

Party definitions require attention when affiliates, investors, lenders, consultants, or potential financing sources will participate. Treating every affiliate as a party can grant rights or impose duties on entities that never signed. A better structure identifies who may receive information, which party answers for a representative's breach, and whether any affiliate can enforce the agreement.

Defining Protected Information

An NDA can define confidential information by category, by the circumstances of disclosure, by a marking requirement, or through a combination of those methods. Categories can include financial statements, pricing, forecasts, software, technical specifications, business plans, customer information, transaction terms, and information received from another person under a confidentiality duty.

Definitions based on context protect information that a reasonable recipient would understand as confidential from its nature or the circumstances. Marking rules provide a sharper record but can exclude valuable material when someone forgets a label. Oral disclosure provisions can cover information identified as confidential when disclosed, followed by a written confirmation within the period stated in the agreement.

The definition affects administration and proof. A broad definition may cover more than a statutory trade secret, but the claimant must identify the information and prove prohibited use or disclosure. In Providence Title Co. v. Truly Title, Inc., No. 25-40194 (5th Cir. May 14, 2026), the Fifth Circuit accepted that the NDA definition covered more than the trade secret categories analyzed below, yet affirmed summary judgment because access to information and subsequent competitive success supplied no evidence of misuse.

Exclusions and Proof

Commercial NDAs commonly exclude information that became public without breach, was already lawfully known to the recipient, came lawfully from another source without a confidentiality duty, or was developed independently without use of the protected information. Each exclusion addresses information the recipient can use through a source independent of the disclosure.

The agreement can assign responsibility for proving an exclusion and can require contemporaneous records. Repository histories, dated development files, earlier emails, and records of receipt from another source offer better proof than a witness trying to reconstruct events after a dispute begins.

Precise public availability language distinguishes information already public from information that enters the public domain through the recipient's breach. A compilation can retain value even when individual components appear in public sources, and a limited disclosure may leave the rest protected.

Permitted Use and Authorized Recipients

Nondisclosure and use restrictions serve different functions. A recipient can misuse information without publishing it, such as by using confidential pricing to underbid the disclosing party or using acquisition data to recruit employees. A permitted purpose provision identifies the evaluation, transaction, or services for which the recipient may use the information.

Access can extend to employees, officers, directors, lawyers, accountants, financing sources, and other representatives who require the information for that purpose. The NDA can require those recipients to follow confidentiality duties and can make the contracting party responsible for violations by its representatives. Affiliates and financing sources may require separate treatment when the recipient lacks authority to bind them.

Technical information may justify restrictions on copying, benchmarking, reverse engineering, decompiling, model training, or combining data with another dataset. Those restrictions require coordination with the software license, services agreement, data processing agreement, and applicable law. When the NDA states that disclosure grants no patent, copyright, trademark, or other intellectual property license, the parties can evaluate information without implying a license.

Required Disclosure and Protected Reporting

A subpoena, court order, regulatory request, or other legal demand may require disclosure. The NDA can permit compliance, require notice when law allows it, limit production to the required information, and provide reasonable cooperation if the disclosing party seeks a protective order. The clause can exempt notice when an order or law prohibits it.

Whistleblower and protected activity provisions require separate treatment. Under 18 U.S.C. § 1833(b), an employer has to provide notice of the DTSA immunity in an agreement with an employee that governs use of trade secrets or other confidential information. For this rule, employee includes an individual who performs services as a contractor or consultant.

An employer may satisfy the notice rule through the agreement or a cross reference to a policy document that states the reporting policy. If the employer omits the notice, it can't recover exemplary damages or attorney fees under the DTSA from the employee who received no notice. The requirement applies to agreements entered into or updated after May 11, 2016 and affects those federal remedies rather than the validity of the entire NDA.

Term, Survival, and Trade Secret Status

Agreement term and confidentiality duration answer separate questions. The term identifies when disclosures fall under the NDA, while the survival provision identifies how long use and disclosure restrictions continue for information received during that term. Drafting that says only the NDA expires on a date can leave the survival result uncertain.

Commercial value, legal obligations, and the life of the information provide firmer grounds for a survival period than a universal number of years. Deal terms may lose sensitivity when a transaction becomes public, while source code, formulas, or nonpublic technical processes may retain value for decades. Personal data and information entrusted by another person may also remain subject to separate contractual or statutory duties.

Trade secret protection depends on continuing secrecy, reasonable protective measures, and independent economic value. An indefinite clause can protect trade secrets for as long as they satisfy the governing statutory definition. Texas Civil Practice and Remedies Code Section 134A.003 requires an injunction to terminate when the trade secret ceases to exist, although a court may continue it for a reasonable period to eliminate a commercial advantage produced by the misappropriation.

Return, Deletion, and Retained Records

At the end of an evaluation or business relationship, the NDA can require return or deletion of confidential information within a stated period. The provision can address copies, extracts, notes, collaboration systems, personal devices, test environments, artificial intelligence systems, and materials held by representatives.

Backup systems and legal retention duties require usable exceptions. A recipient may retain an archival copy for evidence, insurance, regulation, or legal compliance while keeping it inaccessible for ordinary business use and subject to continuing confidentiality duties. A deletion certificate has value only when the signer can verify the systems and recipients within its scope.

Injunctions, Damages, and Attorney Fees

TUTSA authorizes courts to enjoin actual or threatened misappropriation, award actual loss and unjust enrichment, or impose a reasonable royalty. Willful and malicious misappropriation proven under the statute's "clear and convincing evidence" standard can support exemplary damages up to twice the compensatory award. Attorney fees depend on the statutory grounds, including bad faith or willful and malicious misappropriation, or on another statute or an enforceable contract provision.

An NDA often records the parties' view that unauthorized disclosure may cause irreparable harm and that injunctive relief may be appropriate. Courts review the evidence independently. In Galderma Laboratories, L.P. v. Brenner, 2026 Tex. Bus. 12, the Texas Business Court denied temporary relief on confidentiality and TUTSA claims because file access and suspicion failed to show use, disclosure, possession, or threatened misappropriation. By contrast, the court enforced the agreement's noncompete as reformed under Section 15.51 of the Business and Commerce Code. Confidentiality claims and restraints on competition therefore depend on separate proof and separate statutory analysis.

Liquidated damages require more than a recital that losses will be hard to calculate. Atrium Medical Center, LP v. Houston Red C LLC, 595 S.W.3d 188 (Tex. 2020), requires harm that was difficult to estimate when the parties contracted and an amount that reasonably forecast just compensation. A clause can also fail when an unbridgeable discrepancy separates the fixed amount from actual damages at breach.

Employment and Competition Restrictions

An employment NDA can protect confidential information without preventing a former employee from using general knowledge, skill, and experience. TUTSA itself bars an injunction from prohibiting those abilities. Definitions tied to information unavailable through lawful public or industry sources help preserve that boundary.

Restrictions on employment, customers, territory, or competitive activity raise separate issues under the Texas Covenants Not to Compete Act. Texas Business and Commerce Code Section 15.50 applies limits based on time, geography, and the activity restrained. Combining those restraints with confidentiality terms won't avoid the statutory analysis.

Administration Before a Dispute

An NDA protects information through contract language and consistent handling. Access controls, confidentiality labels when required, recipient lists, repository permissions, download logs, return records, and deletion confirmations can show both reasonable secrecy measures and compliance with the agreement.

The same records can test a suspected breach. The 2026 decisions in Providence Title and Galderma treated access as different from misuse and required evidence tied to disclosure, use, possession, or a genuine threat. An NDA defines the duty, while the evidence determines whether anyone violated it.