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๐Ÿ” Whatโ€™s Hiding in Your NDA? Narrowing the Residuals Clause to Protect Confidential Information

by | Apr 29, 2025 | Blog

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 didnโ€™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.

๐Ÿ›ก๏ธ๐—ช๐—ต๐—ฎ๐˜ ๐—œ๐˜€ ๐—ฎ ๐—ฅ๐—ฒ๐˜€๐—ถ๐—ฑ๐˜‚๐—ฎ๐—น๐˜€ ๐—–๐—น๐—ฎ๐˜‚๐˜€๐—ฒ?

A residuals clause typically allows the recipient to use โ€œideas, concepts, know-how, or techniquesโ€ that they retain in unaided memory, even if those came from the disclosing partyโ€™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 โ€” legally.

๐Ÿ›ก๏ธ๐—ช๐—ต๐˜† ๐—ฌ๐—ผ๐˜‚ ๐—ฆ๐—ต๐—ผ๐˜‚๐—น๐—ฑ ๐—–๐—ฎ๐—ฟ๐—ฒ

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

๐Ÿ›ก๏ธ ๐—›๐—ผ๐˜„ ๐˜๐—ผ ๐—ก๐—ฎ๐—ฟ๐—ฟ๐—ผ๐˜„ ๐˜๐—ต๐—ฒ ๐—–๐—น๐—ฎ๐˜‚๐˜€๐—ฒ

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 โ€” 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.

โœ๏ธ ๐—ฆ๐—ฎ๐—บ๐—ฝ๐—น๐—ฒ ๐—ฅ๐—ฒ๐˜€๐—ถ๐—ฑ๐˜‚๐—ฎ๐—น๐˜€ ๐—–๐—น๐—ฎ๐˜‚๐˜€๐—ฒ (๐— ๐˜‚๐˜๐˜‚๐—ฎ๐—น ๐—ก๐——๐—” ๐—ฉ๐—ฒ๐—ฟ๐˜€๐—ถ๐—ผ๐—ป)

Hereโ€™s a sample you can use in mutual NDAs:

Residuals. Each party (a โ€œRecipientโ€) may use information retained in unaided human memory following access to the other partyโ€™s (โ€œDiscloserโ€™sโ€) 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.

๐Ÿ›ก๏ธ๐—•๐—ผ๐˜๐˜๐—ผ๐—บ ๐—Ÿ๐—ถ๐—ป๐—ฒ

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.

๐๐ซ๐จ ๐ญ๐ข๐ฉ: If youโ€™re sharing information thatโ€™s strategic, technical, or sensitive, donโ€™t let the residuals clause do more harm than good.

๐—–๐—ผ๐—ป๐˜๐—ฎ๐—ฐ๐˜ ๐—ผ๐˜‚๐—ฟ ๐—ฎ๐˜๐˜๐—ผ๐—ฟ๐—ป๐—ฒ๐˜†๐˜€ ๐˜๐—ผ ๐—ฑ๐—ถ๐˜€๐—ฐ๐˜‚๐˜€๐˜€ ๐—ป๐—ผ๐—ป-๐—ฑ๐—ถ๐˜€๐—ฐ๐—น๐—ผ๐˜€๐˜‚๐—ฟ๐—ฒ ๐—ฎ๐—ป๐—ฑ ๐˜๐—ฟ๐—ฎ๐—ฑ๐—ฒ ๐˜€๐—ฒ๐—ฐ๐—ฟ๐—ฒ๐˜ ๐—ถ๐˜€๐˜€๐˜‚๐—ฒ๐˜€.

#NDARisks #ResidualsClause #ConfidentialInformation #TechLaw #SaaSContracts

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