Are perpetual confidentiality clauses in NDAs enforceable under current state trade secret statutes?

Perpetual confidentiality clauses are generally unenforceable under current U.S. law unless they strictly apply to bona fide trade secrets. Courts frequently strike down indefinite restrictions on general business information as unreasonable restraints on trade, preferring time-bound limitations that align with the information's commercial lifespan.

The Legal Landscape of Perpetual Confidentiality

The enforceability of a confidentiality clause hinges on the distinction between "trade secrets" and "confidential information." Under the Defend Trade Secrets Act (DTSA) and the Uniform Trade Secrets Act (UTSA), trade secrets are protected for as long as they remain secret. However, when an NDA attempts to apply perpetual protection to information that does not meet the legal definition of a trade secret, it often fails the "reasonableness" test applied by state courts.

The Reasonableness Standard

Courts apply a balancing test to determine if a restrictive covenant is enforceable. If a clause is deemed overbroad, a judge may either strike it entirely or "blue-pencil" (rewrite) it to a reasonable duration. Factors include:

• Scope of Information: Is the definition of "confidential" overly broad?
• Commercial Lifespan: How quickly does the information become obsolete?
• Undue Hardship: Does the restriction prevent the counterparty from earning a living or working in their field?
• Legitimate Business Interest: Is the protection necessary to prevent competitive harm?

Key takeaway: If your NDA defines "confidential information" to include everything from trade secrets to general office procedures, a perpetual term will likely be unenforceable in most jurisdictions.

Jurisdictional Variations

State laws vary significantly regarding the enforceability of restrictive covenants. While some states are more permissive, others—most notably California—have a strong public policy against any restraint on trade.

Actionable Steps for Drafting

1. Define Trade Secrets Separately: Create a distinct category for trade secrets that survives the term of the agreement.
2. Implement Tiered Durations: Apply specific time limits (e.g., 2–5 years) to general confidential information based on its industry shelf-life.
3. Include a Severability Clause: Ensure that if a court finds the perpetual term unenforceable, the rest of the agreement remains intact.
4. Conduct Periodic Audits: Review legacy NDAs to ensure they comply with evolving state-specific precedents.

When Perpetual Clauses Fail

A perpetual clause is most likely to be challenged when it restricts an employee's ability to use general skills or knowledge acquired during their tenure. If a court determines that the "confidential information" is actually just the employee's general professional experience, the perpetual restriction will be viewed as an illegal non-compete in disguise.

Key takeaway: Always include a "carve-out" for information that becomes public through no fault of the receiving party, as this is a standard requirement for enforceability.

Best Practices for Modern NDAs

To maximize the likelihood of enforcement, move away from "one-size-fits-all" perpetual clauses. Instead, tailor the duration to the specific asset being protected. For example, a software algorithm may warrant longer protection than a customer list, which may lose its value within 12 to 24 months.

TermScore can automatically analyze your existing contract templates to identify overbroad perpetual confidentiality clauses and suggest language that aligns with current state-specific enforcement trends, ensuring your agreements are both protective and legally sound.