NDAs (Non-Disclosure Agreements) are supposed to protect confidential information — but buried in many of them is a sneaky little clause that can quietly undo all that protection: the residuals clause.

At first glance, residuals clauses sound reasonable. They allow the receiving party to use information that they happen to remember from the project — as long as they didn’t write it down. But left unchecked, this can open the door to using your confidential ideas, strategies, and know-how in ways that feel a lot like misappropriation.

🛡️𝗪𝗵𝗮𝘁 𝗜𝘀 𝗮 𝗥𝗲𝘀𝗶𝗱𝘂𝗮𝗹𝘀 𝗖𝗹𝗮𝘂𝘀𝗲?

A residuals clause typically allows the recipient to use “ideas, concepts, know-how, or techniques” that they retain in unaided memory, even if those came from the disclosing party’s confidential information.

Sounds harmless?

In practice, it can mean someone sees your proprietary product strategy, remembers it, and uses it in their next pitch — legally.

🛡️𝗪𝗵𝘆 𝗬𝗼𝘂 𝗦𝗵𝗼𝘂𝗹𝗱 𝗖𝗮𝗿𝗲

Residuals clauses are especially risky when:

• You’re sharing strategic or technical insights (think algorithms, pricing, or customer data)
• The recipient is a potential competitor
• You’re entering a consulting or evaluation relationship with no long-term engagement

🛡️ 𝗛𝗼𝘄 𝘁𝗼 𝗡𝗮𝗿𝗿𝗼𝘄 𝘁𝗵𝗲 𝗖𝗹𝗮𝘂𝘀𝗲

Here are ways to protect yourself:

1. Exclude key categories like source code, pricing, customer lists, or business plans.
2. Limit residual use to unaided memory — and prohibit memorization or note-taking.
3. Prohibit use in competitive activities like developing similar products.
4. Restrict which roles can rely on the clause (e.g., no execs or product leads).
5. Impose a time limit (e.g., no residuals use for 2 years).
6. Require written certification if residuals are invoked.

✍️ 𝗦𝗮𝗺𝗽𝗹𝗲 𝗥𝗲𝘀𝗶𝗱𝘂𝗮𝗹𝘀 𝗖𝗹𝗮𝘂𝘀𝗲 (𝗠𝘂𝘁𝘂𝗮𝗹 𝗡𝗗𝗔 𝗩𝗲𝗿𝘀𝗶𝗼𝗻)

Here’s a sample you can use in mutual NDAs:

Residuals. Each party (a “Recipient”) may use information retained in unaided human memory following access to the other party’s (“Discloser’s”) Confidential Information, provided that:
(a) such information was not intentionally memorized or recorded to avoid confidentiality obligations;
(b) such residual use excludes source code, customer or vendor lists, pricing data, strategic plans, or anything designated as excluded;
(c) such information may not be used to compete with the Discloser;
(d) only non-strategic personnel may rely on residuals;
(e) the clause expires 2 years after disclosure; and
(f) the Recipient must certify compliance upon request.

🛡️𝗕𝗼𝘁𝘁𝗼𝗺 𝗟𝗶𝗻𝗲

Residuals clauses are not inherently bad — but they should never be boilerplate. If you’re drafting or reviewing an NDA, pay close attention to this clause. With a few simple edits, you can preserve the value of your confidential information while still allowing the other party to do business.

𝐏𝐫𝐨 𝐭𝐢𝐩: If you’re sharing information that’s strategic, technical, or sensitive, don’t let the residuals clause do more harm than good.

𝗖𝗼𝗻𝘁𝗮𝗰𝘁 𝗼𝘂𝗿 𝗮𝘁𝘁𝗼𝗿𝗻𝗲𝘆𝘀 𝘁𝗼 𝗱𝗶𝘀𝗰𝘂𝘀𝘀 𝗻𝗼𝗻-𝗱𝗶𝘀𝗰𝗹𝗼𝘀𝘂𝗿𝗲 𝗮𝗻𝗱 𝘁𝗿𝗮𝗱𝗲 𝘀𝗲𝗰𝗿𝗲𝘁 𝗶𝘀𝘀𝘂𝗲𝘀.

#NDARisks #ResidualsClause #ConfidentialInformation #TechLaw #SaaSContracts