NDAs (Non-Disclosure Agreements) are supposed to protect confidential information โ 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 โ as long as they didnโt 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.
๐ก๏ธ๐ช๐ต๐ฎ๐ ๐๐ ๐ฎ ๐ฅ๐ฒ๐๐ถ๐ฑ๐๐ฎ๐น๐ ๐๐น๐ฎ๐๐๐ฒ?
A residuals clause typically allows the recipient to use โideas, concepts, know-how, or techniquesโ that they retain in unaided memory, even if those came from the disclosing partyโs confidential information.
Sounds harmless?
In practice, it can mean someone sees your proprietary product strategy, remembers it, and uses it in their next pitch โ legally.
๐ก๏ธ๐ช๐ต๐ ๐ฌ๐ผ๐ ๐ฆ๐ต๐ผ๐๐น๐ฑ ๐๐ฎ๐ฟ๐ฒ
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
๐ก๏ธ ๐๐ผ๐ ๐๐ผ ๐ก๐ฎ๐ฟ๐ฟ๐ผ๐ ๐๐ต๐ฒ ๐๐น๐ฎ๐๐๐ฒ
Here are ways to protect yourself:
- Exclude key categories like source code, pricing, customer lists, or business plans.
- Limit residual use to unaided memory โ and prohibit memorization or note-taking.
- Prohibit use in competitive activities like developing similar products.
- Restrict which roles can rely on the clause (e.g., no execs or product leads).
- Impose a time limit (e.g., no residuals use for 2 years).
- Require written certification if residuals are invoked.
โ๏ธ ๐ฆ๐ฎ๐บ๐ฝ๐น๐ฒ ๐ฅ๐ฒ๐๐ถ๐ฑ๐๐ฎ๐น๐ ๐๐น๐ฎ๐๐๐ฒ (๐ ๐๐๐๐ฎ๐น ๐ก๐๐ ๐ฉ๐ฒ๐ฟ๐๐ถ๐ผ๐ป)
Hereโs a sample you can use in mutual NDAs:
Residuals. Each party (a โRecipientโ) may use information retained in unaided human memory following access to the other partyโs (โDiscloserโsโ) 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.
๐ก๏ธ๐๐ผ๐๐๐ผ๐บ ๐๐ถ๐ป๐ฒ
Residuals clauses are not inherently bad โ 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.
๐๐ซ๐จ ๐ญ๐ข๐ฉ: If youโre sharing information thatโs strategic, technical, or sensitive, donโt let the residuals clause do more harm than good.
๐๐ผ๐ป๐๐ฎ๐ฐ๐ ๐ผ๐๐ฟ ๐ฎ๐๐๐ผ๐ฟ๐ป๐ฒ๐๐ ๐๐ผ ๐ฑ๐ถ๐๐ฐ๐๐๐ ๐ป๐ผ๐ป-๐ฑ๐ถ๐๐ฐ๐น๐ผ๐๐๐ฟ๐ฒ ๐ฎ๐ป๐ฑ ๐๐ฟ๐ฎ๐ฑ๐ฒ ๐๐ฒ๐ฐ๐ฟ๐ฒ๐ ๐ถ๐๐๐๐ฒ๐.
#NDARisks #ResidualsClause #ConfidentialInformation #TechLaw #SaaSContracts