I have been doing IP licensing for over 25 years and perhaps the most elusive part of the practice for me is trade secrets. My uncertainty is well-captured by the sub-title of an article by my learned colleague and friend John Hull entitled "Trade Secret Licensing: The Art of the Possible" (Journal of Intellectual Law and Practice, 4 (3) 2009). In the article, the following sub-title appears "Is a Non-disclosure Agreement a Trade Secret"? Hull frames the question as follows: "Broadly speaking, making available one's trade secrets takes one of two commonly adopted forms--non-disclosure agreement (sometimes called a confidential disclosure agreement"
Hull goes on to explain the difference thus:
"A non-disclosure agreement has few of the characteristics of a license. The scope and purpose of disclosure is usually limited. It seems reasonably safe to assert that the intention of most parties to a non-disclosure agreement is not to engage in a licensing transaction."To further support this claim, Hull brings a form of clause which is frequently found in a non-disclosure agreement as follows:
" No licence is granted to the Recipient hereunder and no licence shall be deemed to have arisen or be implied by virtue of the parties entering into the Agreement."In truth, it is this clause, in its various forms, which continues to perplex me and I have never really understood it. If a non-disclosure agreement is not a licence, then what is it? Granted, the classic understanding of an IP licence does not easily apply to the grant (read: disclosure) of one's trade secret to a third party. After all, a trade secret is not a negative right, such that a trade secret licence is not the grant by the disclosing party of a right of use, in the absence of which the disclosed party would be in breach. As we all know, it is the negative right aspect of IP rights that constitute the basis for IP licensing.
But if that is true, then the observation should apply in equal measure to both a non-disclosure agreement and to a so-called "real" trade secret licence. Neither is a licence in the classical sense. Few, if any, however, seem willing to stake out such a radical position. In its stead, two possibilities suggest themselves. The first is that both the non-disclosure agreement and the "real" licence are both licences of a sui generis kind. Both rest on the willing disclosure by the trade secret to a third party, even though the terms, scope, purpose, and consideration will likely differ. That seems to me to be the more natural interpretation.
But that appears to be the minority position. More commonly, it seems, a distinction is made, whereby the non-disclosure agreement is deemed not to be a licence, and the contractual provision set out above is intended to give explicit effect to that distinction. However, no effort is made to explain exactly (i) what is the legal nature of the non-disclosure agreement, if it is not a licence, or (ii) what are the implications of this "non-licence" status. After all, the fact that an agreement sets forth a declaration--such as that no licence is created--does not necessarily resolve the issue. It is the relationship between the parties, and not a mere contractual declaration, that is ultimately determinative. And so the question remains: If a non-disclosure agreement is not a licence, then what exactly is it?