Confidentiality Provisions: One Size Does Not Fit All

Obligations of confidentiality, non-disclosure and non-use are integral to virtually every relationship in the life science industry. These provisions are found in clinical trial and research agreements to protect the sponsor’s protocol, drug/device, investigators brochure and the like. They are a cornerstone of all collaboration agreements, including joint research, development and promotion agreements. Then there is the stand-alone nondisclosure agreement or confidential disclosure agreement (CDA), which enables parties to exchange information as part of evaluating and negotiating potential business relationships. So pervasive are these provisions that lawyers and lay persons alike can become complacent when reviewing the specifics of particular confidentiality/nondisclosure/nonuse provisions in the mistaken belief that such terms are ‘standard.’

Breach of these obligations, whether intentional or not, can be publically embarrassing as well as expensive, as Eli Lilly and Co. discovered when, in 2007, it agreed to pay $18 million to settle a contract and patent dispute with Emisphere Technologies, Inc., after the court found that Lilly had breached the confidentiality provisions of its license agreement by conducting secret research involving applications of Emisphere’s technology outside the scope of the license and when its employees conveyed Emisphere’s confidential information to other Lilly employees involved in the secret research. Emisphere and Lilly had entered into a $60 million strategic alliance to develop oral formulations of two therapeutic proteins. The relationship broke down when, in 2003, Emisphere identified a published international patent application submitted by Lilly which Emisphere believed covered the use of its technology with a protein outside the scope of the license, and served notice of breach upon Lilly. When Emisphere terminated the agreement, Lilly filed a declaratory judgment action contesting Emisphere’s right to terminate. In finding against Lilly the court noted that, in its view, “Lilly deliberately chose a course that was too aggressive, one that tried to sail too close to the wind” which resulted in the lawsuit, the termination of the collaboration and the loss of Lilly’s investment in the project. See Eli Lilly and Co. v. Emisphere Technologies, Inc. , 408 F.Supp.2d 668 (S.D. Ind. 2006).