Set Up: A unilateral NDA is created in the state of Rhode Island between a Receiving Party and a Disclosing Party. This is a basic patent NDA that grants the Receiving Party the ability to see the un-patented information, which is labelled as confidential. As confidential information, the NDA states the Receiving Party is not allowed to disclose this information (be it intentionally or unintentionally) until the agreement expires nor is it allowed to patent the information.

In said NDA, there is a clause that states (in legalese), "If the Receiving Party is to violate the Agreement by selling any confidential information mentioned in the Agreement, or use the confidential information to develop their own working device, all assets generated as a result of the confidential information (i.e. money gained by building and selling the device) shall become the property of the Disclosing Party."

There is no clause in the NDA that states anything like, "the NDA is invalid if information labelled as confidential is leaked by the Receiving Party." The NDA only says that the Receiving Party shall be prosecuted for a breach of contract. In more severe cases, the clause from the previous paragraph (second paragraph) will be used to compensate the Disclosing Party.

Question: Can this clause be upheld in court? Would the clause actually enable the Disclosing Party to seize any assets the Receiving Party had generated with the confidential information, assuming both parties signed on and that the courts were able to quantify the net worth of all assets generated by the leaked confidential information? Thank you.

1 Answer 1



The parties have agreed that the remedy for a breach will be transfer of assets gained as a result. This is not a penalty and seems perfectly valid.

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