United States: Confidentiality Agreements Not Enforceable In Absence Of Reasonable Efforts to Preserve Confidentiality

nClosures Inc. v. Block and Company, Inc.

Applying Illinois law, the U.S. Court of Appeals for the Seventh Circuit reminded prospective business partners that non-disclosure agreements will not be effective by themselves to protect information a company regards as confidential and proprietary.  To be enforceable, the information itself must ostensibly be "confidential" and must also be subject to reasonable efforts on the part of the company to preserve its confidentiality.  nClosures Inc. v. Block and Company, Inc., No.13-3906 & 14-1097 (7th Cir., Oct. 22, 2014) (Flaum, J.)


In 2011, Block approached nClosures about forming a partnership to develop and market enclosures for communication devices, such as iPads and other tablet products.  The parties entered into a confidentiality and non-disclosure covenant so that they could explore the potential partnership.  The non-disclosure agreement provided that "[t]he parties . . . agree that the Confidential Information received from the other Party shall be used solely for the purpose of engaging in the Discussions and evaluating the Objective. [] Except for such Permitted Purposes, such information shall not be used, either directly or indirectly, by the Receiving Party for any other purpose."  Based on the non-disclosure agreement, nClosures provided Block with certain of its confidential and proprietary information, including product designs, market knowledge, manufacturing set-up, solid models and assembly drawings.

nClosures alleged that Block took nClosures' confidential information and used it to create its own iPad tablet enclosure.  During the development of Block's product, Block allegedly reiterated to nClosures that a partnership existed between the parties, although the parties ultimately never signed a final partnership agreement.  Block launched its own enclosure product in August 2012, and later that month indicated to nClosures that Block would no longer sell products by nClosures, effectively terminating the business relationship between the parties.

nClosures filed suit asserting claims for fraud, trade secret misappropriation, breach of fiduciary duty, breach of contract claim and unfair competition.  nClosures moved for a preliminary injunction based upon the breach of contract claim and Block's alleged use of nClosures' confidential designs and manufacturing knowledge.  The district court granted nClosures' motion for a preliminary injunction and enjoined Block from using nClosures' tablet enclosure designs, manufacturing know-how and market knowledge until the district court reached a final determination on the merits.  After the parties filed cross-motions for summary judgment, the district court granted summary judgment in favor of Block.  nClosures appealed.

In its appeal, nClosures challenged the district court's decision regarding nClosures' breach of contract and breach of fiduciary claims.

The Contract Is Not Always King

The Seventh Circuit affirmed the district court's summary judgment in favor of Block on the breach of contract claim, citing Tax Track Sys. Corp. v. New Investor World, Inc.  The Court explained that under Illinois law, courts "will enforce confidentiality agreements only when the information sought to be protected is actually confidential and reasonable efforts were made to keep it confidential."  Thus, a non-disclosure agreement is of limited legal value unless, behind it, the evidence demonstrates that the information subject to the agreement is truly confidential and remains so by virtue of reasonable measures to preserve its confidentiality.

Although the Seventh Circuit acknowledged that nClosures and Block had signed a non-disclosure agreement at the outset of their business relationship, it pointed out that nClosures did not require confidentiality agreements from other companies or individuals who accessed the design files for its proprietary enclosure products, including an independent contractor who created the initial enclosure designs and a third-party company that initially manufactured the enclosure products.  It further noted that nClosures failed to mark its design drawings with designations such as "CONFIDENTIAL" or "CONTAINS PROPRIETARY INFORMATION."  Nor did nClosures maintain the design files under lock and key or store them in a computer with restricted access.  Consequently, the Court concluded, "[t]hese facts show that nClosures did not engage in reasonable steps to protect the confidentiality of its proprietary information, and therefore the confidentiality agreement with Block is unenforceable."

Partnership Requires Co-Ownership and Profit-Sharing

nClosures argued that Block violated its fiduciary duties by manufacturing and marketing its own iPad enclosures without providing any benefit to nClosures, its purported partner.  The district court concluded that because the parties were not, in fact, partners under the law, Block owed no fiduciary duties to nClosures and therefore no breach of those duties could have occurred.  The Seventh Circuit affirmed.

Ordinarily, partners owe fiduciary duties to fellow partners, including the sharing of benefits of a joint enterprise.  In upholding the district court's determination that no partnership was formed between Block and nClosures, the Seventh Circuit, citing Illinois statutory law, explained that parties must be co-owners and share profits in order for a partnership to be recognized.  The Court explained that foremost among the considerations courts consider in determining if a partnership has formed is whether the parties have agreed to share profits and losses.

The Seventh Circuit concluded that no reasonable jury could find that nClosures and Block formed a partnership, and consequently, Block did not owe or violate any fiduciary duty to nClosures.

Practice Note: At least in the Seventh Circuit, non-disclosure agreements only go so far.  If a party fails to take reasonable steps to ensure its proprietary information remains confidential, a confidentiality agreement will not fill the gap, and neither will the courts.

IP Update, Vol. 17, No. 11, November 2014

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.