When recipients of confidential information are bound by an obligation to return or destroy that information, they should be vigilant to ensure that electronic copies do not arrive on different desktop hard drives or corporate data management systems, where backup copies are likely to be produced. Otherwise, they could be exposed to considerable costs if the party under consideration wishes to insist on strict compliance with the NDA`s letter. DDNs are used in a wide range of circumstances, including the exchange of information on mergers and acquisitions, risk capital due diligence and debt financing, as well as joint venture agreements. In almost all cases, confidential information is passed from one party to another on the critical condition that it be used for limited purposes and then either returned or destroyed. In this era of electronic data transmission and storage, the problem is that the return or destruction of confidential information is not viable on an economically acceptable basis and can therefore be virtually impossible. Nevertheless, leaders regularly sign documents confirming that all confidential information they have received has been either returned or destroyed. It makes sense to let a party receive the obligation to browse all backup tapes and dispose of confidential information. But I`m not sure the typical carve-out is wide enough to cover all copies of the actual information. In fact, I am not sure that it is possible to take into account all these copies. Consider these questions: (1) How many copies of the document are available now? (2) Where are the copies of the document? (3) Can all copies be rounded up and destroyed if necessary under a confidentiality agreement? The answer to (3) is probably “no,” and I think (1) and (2) are as easy to answer as “How many angels can dance on the head of a pin?” Some confidentiality agreements provide for derogations from the obligation to return or destroy information. For example, the agreement could allow counsel for the receiving party to keep an archival copy in the event of a dispute. Some well-designed confidentiality agreements also take into account the realities of our electronic world, where data is automatically copied for backup purposes. These confidentiality agreements may benefit from an exception for backup copies to which no one other than IT staff has access.
This discrepancy between theory and reality is explained by the fact that information transmitted and stored in electronic form is extremely difficult to contain and control. The most obvious example, at least the one that will be evident after some thought, is that most companies create daily, if not hourly, backup copies of all the data on their servers. Data is archived in secure offsite facilities, sometimes in “hotsites” that offer near-instant access to the data, and sometimes in “Coldsites,” where a hard drive must be physically installed in a server to access. Answer #1: We produce confidentiality agreements (NDAs) like crazy in our fund, so I think we have a pretty good feeling for market conditions. At that time, most recipients of confidential information under the standard would retain “a copy” in conjunction with their “standard records retention policies,” which apply to all their counterparty relationships. Your question doesn`t seem too aggressive….