Joint Development Agreements and Trade Secrets - Sweat the Small Stuff

Joint development, or “teaming agreements” regularly anticipate one party disclosing trade secret subject matter to its counterparty to facilitate the joint development effort. While most JDAs involve companies with distinct technology focuses, it is not uncommon for companies with overlapping technology focuses, or even direct competitors, to enter into these agreements. But all too often these relationships breakdown, resulting in one or both parties holding the trade secret materials of their counterpart. So long as each party returns the other’s confidential material and complies with their non-disclosure and non-use provisions obligations, the parties can move on. But when things go awry, trade secret misappropriation claims get filed. Things only get worse when an aggrieved party contractually limits their ability to recover for a breach of those non-disclosure and non-use obligations.

Such was the case between Pemco Aircraft Engineering Services Inc. and the Boeing Company, who entered into a “Teaming Agreement” to bid for a 2008 Air Force Contract. After the relationship broke down, Pemco suspected Boeing of misappropriating the trade secret material Pemco disclosed under the Agreement—a breach of Boeing’s non-disclosure and non-use obligations. Pemco subsequently filed suit alleging trade secret misappropriation, but the district court dismissed Pemco’s complaint finding the limitation of liability provision in the Teaming Agreement barred Pemco from recovering damages under the Missouri Trade Secrets Act. The Eleventh Circuit Court of Appeals agreed in large part, holding that broad disclaimer language extended beyond breach of contract claims, thereby precluding Pemco from recovering tort-based damages, including trade secret misappropriation damages. Luckily for Pemco, the Eleventh Circuit held that Pemco’s unjust enrichment claims escape the broad limitation of liability provision.

This case is a good reminder for those entering into joint development agreements to anticipate the exchange of trade secret information. It is not enough to focus solely on measures to protect the trade secret information—companies have to also anticipate the types of damages it may need to seek if those protective measures fail, and litigation becomes the only recourse. When negotiating these agreements, it is critical to preserve the right to pursue all forms of trade secret misappropriation damages, and not just focus on the covenants that seek to prohibit that theft.

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