Non-disclosure agreements, or NDAs, are essential components of public and private merger and acquisition sale processes, as they facilitate the flow of commercial information from the target to the acquirer for due diligence purposes while protecting the target’s proprietary and competitively sensitive information. Particularly in circumstances where the potential acquirer and target operate in the same industry, the target may be concerned that the information provided to the acquirer for due diligence could be used for another, potentially improper, purpose. Thus, a key provision in almost every NDA is a “use” clause, which limits the ways in which the party receiving confidential information may use that information.
Notwithstanding the fact that NDAs are commonplace in M&A transactions, breaches of NDAs are rarely litigated. Parties may be reluctant to make the dispute public and damages for breach of an NDA can be difficult to prove. Nonetheless, as the following cases demonstrate, “use” clauses can have collateral consequences if litigation does arise depending on other provisions in the NDA and how the transaction develops. Such consequences include exposing a party to potential liability for transaction fees or operating as a “standstill” that precludes the receiving party from pursuing an acquisition of the target.
