the Zealous

The obligation to return or destroy confidential information upon request (or at contract termination) is ubiquitous in confidentiality agreements. But in this era of distributed network computing and cloud storage, when nothing can ever be completely deleted everywhere, compliance with such a clause is illusory.

Consider the following scenario. Your startup client, a developer of a popular app recommendation engine, is running low on cash, and further investment is not in the cards. The shareholders decide it’s time to sell.

Excitement ensues as a massive personal technology lifestyle company takes an interest. After completion of due diligence, however, enthusiasm wanes. Soon the discussion focuses on a potential “acqui-hire,” meaning, a purchase of the company, not to exploit the company’s technology or market share, but simply to hire away the top engineering talent—with a commensurately lower valuation.

Too low for the shareholders, in fact, so they instruct you to terminate negotiations. The story doesn’t end there, however. The suitor turns around and hires away the startup’s top engineering and marketing talent.

Let’s say that you’re the deal lawyer representing a California company in contract negotiations with a New York company. Your client insists on designating California law as the operative body of law that governs the agreement and any related disputes, and on mandating that all disputes be resolved in a California state or federal court.

You negotiate hard for your client’s objective, but the other side is equally determined to designate New York law and New York courts. Your client lacks bargaining leverage to force the issue. Eventually, the other side carries the day on this battle, and your client is forced to accept the designation of New York law and courts in the contract.