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Mark Grossman

Tricks and Tips of the Trade

9 September 1998

Non - Disclosure Loophole

Non-Disclosure and Confidentiality Agreements are a routine part of negotiations and business transactions in the high-tech world. I'm seeing more agreements that have a "residuals clause." Depending on what side of the deal you're on, this could save or sink you. It takes some of the teeth out of these agreements. You must focus your attention on them.

In plain English, "residuals" are what you happen to remember. In legalese, you might define "residuals" as "any information remembered or retained by you in memory after you return all tangible materials." A "residuals clause" excludes anything that you happen to remember from your non-disclosure and confidentiality obligations.

So, the scenario is that you sign a Non-Disclosure Agreement, you get a "residuals clause" and then, depending on how good your memory is, you can use anything that you can remember. For the less scrupulous, this is an opportunity for them to retain copies of "the documents that they gave back."

In case the "why" isn't obvious, when you accuse them of using "confidential" information, they can always assert that they just happened to remember it. Short of finding the smoking gun, which would be the improperly copied written materials, this lie is difficult to overcome in a lawsuit. So, be wary of "residuals clauses" in your agreements.

Deficient Internet Service

A little over a year ago, I wrote a column on online access provider liability. An "online access provider" is a company that gives your computer an on-ramp to the Internet. The term also broadly encompasses companies that host Web sites meaning that your company would pay them to provide the Internet with access to your Web site.

This remains a troubled industry with a well-deserved reputation for poor service. If you lose business because you don't get your e-mail or because their failures caused your Web site not to be accessible, you will have a tough time making them pay.

All too often, you'll find that your contract with them has provisions like: no warranty against interruptions or errors, service provided "as is" or "as available," a disclaimer of all express and implied warranties, and no right to indirect, consequential, special, and incidental damages.

In the year since I wrote the column, little has changed. The contracts are still one-sided against the user, the service is often below par and remedies remain scarce. The best plan remains a recommendation from somebody you trust and having a backup plan. There are good companies out there; you just may have to look hard.

If e-mail is essential to you, you should have a second emergency account with a second company. Be prepared to send out an emergency message to your entire mailing list giving them the backup address if your primary goes down.

Be sure that you have your entire Web site backed up on media that you control. Have a plan in place to move the entire site to another company for hosting. While it's true that this cannot be accomplished instantly, you may have no better option.

Tricks and Tips of the Trade is republished from
Mark Grossman
Mark Grossman