NDA Negotiation Niche Points: Residuals, Non-Solicit Carve-Outs, Standstills, Term, and Trade Secrets
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Most NDA negotiations do not fail on the definition of "Confidential Information." They stall on five narrower points: residuals, non-solicit carve-outs, standstills, term and survival, and trade-secret treatment. This article takes each one at the clause level, with sample language, what each piece does, the Texas and Delaware law that shapes it, and where negotiated outcomes tend to land. For the process-level overview of the NDA in an M&A deal, see key NDA terms in M&A deal processes.
Residuals: unaided memory versus a back door
A residuals clause lets a recipient use what its people remember after the documents are gone. Operating companies and strategic buyers want it so their engineers and product leads can keep working without a contamination argument. Disclosers fear it becomes a license to use anything someone can recall.
Sample narrow residuals clause:
"Nothing in this Agreement restricts the Recipient's use of Residuals. 'Residuals' means general ideas, concepts, know-how, and techniques of a non-specific nature retained in the unaided memory of Recipient's Representatives who had authorized access to Evaluation Material, without intentional memorization for the purpose of retaining and later using such information. A person's memory is unaided only if the person has not referred to any Evaluation Material or any copy, note, or summary of it. Residuals do not include (a) source code, object code, or technical specifications; (b) personal information; (c) customer or supplier identities, pricing, or contract terms; or (d) any information that constitutes a trade secret under applicable law. This Section does not grant any license under any patent, copyright, or trade secret of the Discloser."
What each piece does:
"General ideas, concepts, know-how, and techniques of a non-specific nature" limits the clause to the kind of learning that is hard to police anyway. Specific numbers, formulas, and designs fall outside it.
The "unaided memory" definition is the core. A person who checks a note, a screenshot, or a summary is no longer relying on memory, and the clause stops protecting them.
"Without intentional memorization" closes the obvious workaround of sending someone into the data room to memorize a pricing model.
The carve-out list removes the categories where recall alone does real damage. The trade-secret carve-out matters most, because without it the residuals clause can be argued as the discloser's consent to use, which undercuts a misappropriation claim under the Texas Uniform Trade Secrets Act, Tex. Civ. Prac. & Rem. Code ch. 134A.
The no-license sentence keeps a court from reading the clause as an implied license under intellectual property rights.
Where deals land: financial sponsors usually concede residuals entirely, because a deal team rarely needs it and conceding it buys goodwill elsewhere. Strategic buyers in an adjacent market often get a narrow clause with the carve-outs above. Broad residuals with no carve-outs are hard to justify for any discloser with real technology.
One more internal check: if the NDA keeps a broad non-use clause, it should say that use of Residuals is not a breach of it. Two clauses that point in opposite directions invite a dispute over which controls.
Non-solicit carve-outs that actually work
An employee non-solicit should answer three questions: which employees, for how long, and what counts as solicitation.
Sample buyer-friendly employee non-solicit:
"For twelve months after the date of this Agreement, Recipient will not, directly or through its controlled Affiliates acting on its behalf, solicit for employment any officer or management-level employee of the Company with whom Recipient first had contact, or of whom Recipient first became aware, through its evaluation of the Transaction. This Section does not restrict (a) general solicitations, including advertisements and search firm engagements, not directed specifically at Company employees, or hiring any person who responds to them; (b) hiring any person who contacts Recipient on his or her own initiative without any direct or indirect solicitation; or (c) soliciting or hiring any person whose employment with the Company ended at least six months before the first solicitation."
What each piece does:
"Controlled Affiliates acting on its behalf" keeps a sponsor from binding every portfolio company. Seller forms often say "Recipient and its Affiliates," which for a fund can mean dozens of operating businesses that never saw the data room.
"Officer or management-level employee" plus "first had contact, or first became aware, through its evaluation" ties the restriction to people the process actually exposed. A covenant covering all 600 employees of a target protects against risk the NDA did not create.
Carve-out (a) is the general-solicitation exception. Without it, a job posting on the buyer's website is arguably a breach.
Carve-out (b) protects hiring someone who applies on their own.
Carve-out (c) frees people who already left. Six months is a common middle ground.
Texas law adds a layer. A non-solicitation covenant is a restraint of trade analyzed under the Covenants Not to Compete Act, Tex. Bus. & Com. Code § 15.50, and the Texas Supreme Court treated a customer non-solicit that way in Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011). The covenant must be ancillary to an otherwise enforceable agreement and reasonable in time, geography, and scope of activity. Between two companies in an NDA, the exchange of confidential information generally supplies the ancillary agreement, along the lines the court accepted in Alex Sheshunoff Management Services, L.P. v. Johnson, 209 S.W.3d 644 (Tex. 2006).
Customer non-solicits are more sensitive when the parties compete. If one is included, define customers narrowly (those identified in Evaluation Material or with whom the recipient had material contact through the process), limit it to soliciting business that competes with the target, and keep it short. Antitrust counsel should see any customer or employee restriction between competitors, because a restriction that is not reasonably tied to the transaction can look like a market allocation or no-poach agreement.
Where deals land: twelve months is the most common term I see in middle-market private processes, with eighteen or twenty-four months on more sensitive deals. Management-level scope with the general solicitation carve-out is close to standard for sponsor buyers. The independent-approach hiring carve-out is the point most often traded.
Standstills: when they belong and when they do not
A standstill restricts the recipient from buying the target's securities or taking hostile action for a period. It matters in public-company processes and in private deals where the recipient could acquire a position through another route, such as buying out a minority holder. Many private middle-market NDAs do not need one.
Sample standstill with negotiated exceptions:
"For twelve months after the date of this Agreement, unless specifically invited in writing by the Company's board of directors, Recipient will not, and will cause its controlled Affiliates not to, (a) acquire beneficial ownership of any voting securities of the Company; (b) make or announce any tender offer, exchange offer, merger proposal, or other business combination proposal involving the Company; or (c) solicit proxies or seek to influence the voting of Company securities. The restrictions in this Section terminate if (i) the Company enters into a definitive agreement providing for the acquisition of more than 50% of its voting securities or consolidated assets by a third party, (ii) a third party commences a tender or exchange offer that the board does not recommend against within ten business days, or (iii) the Company publicly announces that it is exploring a sale. Nothing in this Section prohibits Recipient from making a confidential proposal to the Company's board that is not reasonably expected to require public disclosure."
What each piece does:
The prohibited acts track the ways a bidder goes around the board: buying stock, launching an offer, or running a proxy fight.
The fall-away triggers in (i) through (iii) release the recipient once the company has chosen a path or a third party has forced the issue.
The private-proposal sentence is the cure for "don't ask, don't waive" problems. In In re Complete Genomics, Inc. Shareholder Litigation, C.A. No. 7888-VCL (Del. Ch. Nov. 27, 2012), the Court of Chancery enjoined enforcement of a provision that barred a bidder from privately asking for a waiver, and in In re Ancestry.com Inc. Shareholder Litigation, C.A. No. 7988-CS (Del. Ch. Dec. 17, 2012), the court said such provisions are not per se invalid but require the board to understand them. Both were bench rulings. A board that wants to preserve its ability to hear from bidders after signing a deal should keep that channel open.
Ownership caps sometimes appear instead of a flat ban, for example permitting holdings below 4.9%. The number sits under the 5% level that triggers a Schedule 13D filing under Exchange Act Section 13(d); since February 5, 2024, the initial 13D is due within five business days of crossing that line.
Where deals land: twelve to eighteen months for public targets, with fall-aways for a signed third-party deal and for an unopposed tender offer. In private processes, do not accept a multi-year standstill without a commercial reason. A twelve-month standstill that falls away on an announced auction or a board invitation is a common compromise when the seller insists.
Term length and trade-secret survival
A fixed term for general confidential information is common, often two or three years from signing. Trade secrets need different treatment, because a trade secret loses protection if its owner allows it to be disclosed without restriction.
Sample survival clause:
"Recipient's obligations under this Agreement expire two years after the date of this Agreement; provided that, with respect to any Evaluation Material that constitutes a trade secret under applicable law, such obligations continue for so long as such Evaluation Material remains a trade secret, other than through a breach of this Agreement by Recipient or its Representatives."
What each piece does:
The two-year term covers ordinary confidential information, which loses value as it ages.
The trade-secret proviso avoids an argument that the discloser consented to free use of a trade secret after year two. Under both TUTSA, Tex. Civ. Prac. & Rem. Code § 134A.002(6), and the federal Defend Trade Secrets Act, 18 U.S.C. § 1839(3), the owner must take reasonable measures to keep the information secret. A contract that lets the obligation expire is evidence that it did not.
The "other than through a breach" language prevents the recipient from benefiting from its own leak.
A timing example shows why this matters. Suppose an NDA signed March 1, 2026 has a flat two-year term. On March 2, 2028, the recipient's restrictions end for everything, including a formulation the discloser treats as a trade secret. A misappropriation suit filed later faces the argument that use after that date was authorized by contract. With the proviso, the obligation on the formulation continues. Separately, both TUTSA and the DTSA set a three-year limitations period running from when the misappropriation is or reasonably should have been discovered (Tex. Civ. Prac. & Rem. Code § 16.010; 18 U.S.C. § 1836(d)), so the discloser also needs to act promptly once it learns of misuse.
The DTSA immunity notice
The Defend Trade Secrets Act gives individuals immunity for disclosing trade secrets in confidence to government officials or an attorney solely to report a suspected violation of law, or in a sealed court filing. 18 U.S.C. § 1833(b)(1). An employer must give notice of that immunity in any contract with an employee that governs the use of trade secrets or confidential information, if the contract is entered into or updated after May 11, 2016. § 1833(b)(3). If it does not, the employer cannot recover exemplary damages or attorney fees under the DTSA against an employee who did not receive the notice. "Employee" for this purpose includes individuals performing work as a contractor or consultant. § 1833(b)(4).
The notice can be the statutory text or a cross-reference to a policy document that contains it. It is not usually needed in an NDA between two companies, but it does belong in NDAs signed by individual consultants, advisors engaged directly, and management team members who sign confidentiality undertakings during a sale.
Remedies: injunctions and liquidated damages
Most NDAs include an acknowledgment that breach may cause irreparable harm and that the discloser may seek injunctive relief without proving actual damages or posting a bond. Delaware courts give these provisions weight; in Martin Marietta Materials, Inc. v. Vulcan Materials Co., 56 A.3d 1072 (Del. Ch. 2012), aff'd, 68 A.3d 1208 (Del. 2012), the Court of Chancery relied in part on the parties' contractual stipulation in granting a four-month injunction. Texas courts treat such a stipulation as relevant but still apply the ordinary injunction elements, so a Texas-law NDA should not assume that the clause alone carries the burden.
Liquidated damages for NDA breach are harder. Texas enforces a liquidated damages clause only if the harm from breach is incapable or difficult of estimation and the amount is a reasonable forecast of just compensation, judged at signing. Phillips v. Phillips, 820 S.W.2d 785 (Tex. 1991). In FPL Energy, LLC v. TXU Portfolio Management Co., 426 S.W.3d 59 (Tex. 2014), the Texas Supreme Court refused to enforce a clause that bore no rational relationship to actual damages. A flat $5 million payment for any NDA breach, whether a misdirected email or a stolen customer list, is the kind of clause that test is designed to catch. If a discloser wants a liquidated amount, tie it to a specific breach with a measurable value, such as a per-employee amount for a non-solicit violation set by reference to recruiting and training cost.
Where the five points usually land
Residuals: none for sponsors; a narrow clause with carve-outs for strategic buyers.
Employee non-solicit: management-level, 12 to 18 months, with the general solicitation carve-out.
Standstill: none in most private deals; 12 to 18 months with fall-aways for public targets.
Term: 2 to 3 years, plus trade-secret survival.
Remedies: an injunction acknowledgment; liquidated damages are rare.
These are patterns from practice, not survey data, and a particular industry or counterparty can move any row.
A short negotiation sequence
In the first turn, separate trade-secret survival from the general term, add the general-solicitation and independent-approach carve-outs, narrow the affiliate language, and strike liquidated damages unless there is a measurable basis. Save the hiring carve-out and the standstill length for trades in the second turn.
How I can help
I negotiate NDAs and build playbooks for high-volume programs so these niche points are decided once, not reinvented daily. Office: 1921 Greenville Avenue, Suite 200, Dallas, TX 75206. High-volume process work is covered in high-volume NDA review for private equity.
FAQ
Should we always reject residuals?
No. Many commercial counterparties need a narrow residuals clause. Carve out source code, personal information, customer data, and trade secrets, define unaided memory, and state that the clause grants no license.
Do private company NDAs need standstills?
Often no. Use them when there is a real route to acquire equity or influence the company outside a negotiated deal.
Does an NDA between two companies need the DTSA immunity notice?
Generally no. The notice requirement runs to contracts with employees, contractors, and consultants who are individuals.
Next step
If you would like to discuss next steps, contact me at info@robertsandwillie.com or (469) 910-4017. Sending a message does not create an attorney-client relationship.
This article is for general information and is not legal advice. Cases, statutes, and rules are summarized for general discussion, and their application depends on the facts, contract language, and governing law of each matter. Attorney Advertising. Roberts & Willie, PLLC, Dallas, Texas; Trenton Roberts, responsible attorney.
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