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IP Alert: Seventh Circuit Emphasizes Importance of Careful Contract Drafting

October 16, 2018

Soarus L.L.C. v. Bolson Materials Int’l Corp., recently decided by the Court of Appeals for the Seventh Circuit, demonstrates the consequences of imprecise drafting of nondisclosure agreements.

In 2009, Soarus and Bolson executed a nondisclosure agreement regarding a specialty polymer that Soarus distributed—G-Polymer—that was originally developed by Nippon. Article 6 of the agreement provided:

Bolson shall not file any application for a patent or other intellectual property using any piece of Confidential Information or the results of the Evaluation without prior written consent of Nippon.

But Article 10 of the agreement carved out an exception to that provision:

Notwithstanding Article 6 hereof, Bolson is free to patent and protect any new application using G-Polymer® in the specific area of Fused Deposition Method Rapid Prototyping Equipment and Methods.

Shortly after executing the agreement, Bolson filed a provisional patent application for a 3D printing process utilizing the G-Polymer. The application allegedly revealed confidential information covered by the agreement. Soarus filed suit for breach of contract.

The district court granted Bolson’s motion for summary judgment, finding that Article 10 was clear and afforded the defendant the ability to disclose the confidential information in its patent application. Soarus appealed.

On appeal, the Seventh Circuit affirmed, agreeing with the district court that the terms of the agreement were “clear and unambiguous.” Although the agreement imposed broad restrictions on the defendant’s use of the confidential information, the court found it dispositive that Article 10 used the term “notwithstanding,” which meant that this clause was controlling. Had Soarus wished to preclude the use of confidential information in any patent filings, “the parties instead could (and should) have stated in clear and precise terms” this qualification. Accordingly, the court affirmed the district court’s grant of summary judgment for the defendant.

This case, while perhaps not surprising, is relevant for any companies that routinely use nondisclosure agreements to protect their confidential information. An NDA document should be drafted carefully to ensure that any exceptions to confidentiality are clearly and precisely defined.

For more information on this decision, please contact Fitch Even partner ­Allen E. Hoover.

Fitch Even law clerk Evan Kline-Wedeen contributed to this alert.

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