Residuals Clause Explained

Plain-English Explanation

A Residuals Clause is a part of a non-disclosure agreement (NDA) that deals with information someone might remember after working with you. Imagine you share a lot of ideas and details with a company. Even after they agree to keep it secret, they might still remember some of what you shared. This clause says that if they remember something without looking at notes or documents, they can still use that information.

The clause is about what happens if someone remembers your ideas or information after the NDA period ends. It allows them to use what they remember in their future work, as long as they don’t use any written or recorded information you provided. It’s like saying, "If you remember it, you can use it."

This clause doesn't mean they can share your secrets with others. It just means they can use what they remember in their own work, as long as they didn’t write it down or record it.

Why This Clause Exists

The Residuals Clause exists to help companies and individuals continue to work on new projects without worrying about accidentally using information they learned from you. It’s a way to balance protecting your secrets with allowing people to use their own memories and skills.

Businesses often work with many clients and partners, and they might learn similar things from different people. This clause helps them avoid legal trouble if they remember something from one project and use it in another, as long as they don’t use any documents or specific records from the original project.

Common Risks to Watch For

• The clause may be too broad, allowing more information to be used than you intended.
• It could be unclear what counts as "remembered" information versus what is documented.
• There may be a risk of your confidential information being used in ways you didn’t expect.
• The clause might not clearly define how long the information can be used.
• It could lead to misunderstandings about what is protected under the NDA.

Example in Plain English

Imagine you’re a tech inventor and you share a new app idea with a software company under an NDA. The Residuals Clause in your agreement says that if the company’s developers remember your app concept later, they can use those remembered ideas in their own projects. However, they can’t use any of your written notes or designs. So, if they remember your app’s unique feature and create something similar, the clause allows it, as long as they didn’t copy your exact plans.

When This Clause Causes Issues

• When the person who signed the NDA thinks they can use more information than they actually can.
• If the clause is too vague, it might lead to arguments about what information can be used.
• When one party believes their information is being used unfairly, leading to disputes.

What to Do Before You Sign

• Ask whether the clause clearly defines what counts as "remembered" information.
• Consider how the clause might affect your ability to protect your ideas.
• Ask if there are limits on how long the remembered information can be used.
• Clarify what happens if there’s a disagreement about what was remembered.
• Discuss how the clause might impact future projects or collaborations.