BladeRoom v. Emerson: Trade Secrets

Q: How can a real trade secret be copied without liability?

BladeRoom concerned a contractual duty of confidentiality, not the abstract existence of a secret. Paragraph 12 made the parties' obligations survive the end of the deal talks, but a closing proviso terminated the whole agreement two years after signing. Once the agreement terminated, the contractual obligation not to use the information ended, so use after that date could not breach the NDA even if the information was still secret. The Ninth Circuit did not decide when Emerson's conduct actually occurred; it sent that question back for a new trial.

The Ninth Circuit held that a proviso unambiguously ended an NDA's confidentiality obligations after two years, vacating a $60 million verdict because the jury never heard that defense.

BladeRoom Group Ltd. v. Emerson Electric Co., 11 F.4th 1010 (9th Cir. Aug. 30, 2021) (Nos. 19-16583, 19-16584, 19-16585, 19-16730, 20-15758, 20-15759, 20-15760, consolidated), is the rare appellate decision that turns an eight-figure trade-secret victory into a remand on the strength of a single proviso in an NDA. A jury had found that Emerson breached the parties’ non-disclosure agreement and willfully and maliciously misappropriated BladeRoom’s modular data-center trade secrets, awarding $10 million in lost profits and $20 million in unjust enrichment; the district court (N.D. Cal., Davila, J.) later added $30 million in punitive damages and roughly $18 million in attorneys’ and expert witness fees. The Ninth Circuit reversed the order that produced the error, vacated the judgment, and remanded for a new trial, holding that the natural meaning of the NDA’s twelfth paragraph unambiguously terminated the agreement and its confidentiality obligations two years after signing.

The decision is the cleanest modern illustration of a point that NDA drafters intuit but litigants forget: confidentiality obligations last exactly as long as the contract says, and a generic termination clause can switch the duty of secrecy off entirely.

At a glance

Case: BladeRoom Group Ltd. v. Emerson Electric Co., 11 F.4th 1010 (9th Cir.)
Decision: Opinion reversing the district court’s in limine order, vacating the judgment and post-verdict orders, and remanding for a new trial, August 30, 2021 (Murphy, D.J., sitting by designation; Rawlinson, J., concurring)
Dockets: Nos. 19-16583, 19-16584, 19-16585, 19-16730, 20-15758, 20-15759, 20-15760 (consolidated)
Court below: N.D. Cal. (Davila, J.); jury awarded $10 million in lost profits and $20 million in unjust enrichment, plus $30 million in punitive damages and roughly $18 million in fees
Governing law: The NDA specified that English law governed its interpretation
Key clause: Paragraph 12: the parties’ obligations “shall be continuing and, in particular, they shall survive the termination of any discussions or negotiations … provided that this agreement shall terminate on the date 2 years from the date hereof”
Holding: Under English law, read naturally, the proviso modified all of paragraph 12, so the NDA and its confidentiality obligations terminated two years after execution; the district court’s contrary ruling kept Emerson’s chief defense from the jury and prejudiced its breach, misappropriation, and damages findings

The competition and the collapsed deal

BladeRoom and Emerson both design and build modular data centers: prefabricated, rapidly deployable facilities assembled from standardized units. In August 2011 the companies began discussing Emerson’s possible acquisition of BladeRoom. To enable due diligence, BladeRoom drafted an NDA, both sides signed it, and the parties agreed that English law would govern.

The acquisition fell through. Around the same time, Facebook set out to build a large data center in northern Sweden. BladeRoom pitched a design in July 2012; Emerson pitched a competing design several months later; Facebook verbally approved Emerson’s design on October 30, 2012, selected Emerson’s proposal in November 2013, and signed a design-build contract in March 2014. BladeRoom learned nothing about the design Emerson had pitched until March 2014. A year later it sued Facebook, then amended to add Emerson and its subsidiaries, contending that Emerson had used what it learned during the failed acquisition talks to build the very design that won the Facebook work. The case was tried in 2018; BladeRoom settled with Facebook halfway through trial and pressed on against Emerson. The jury found both breach of the NDA and willful, malicious trade-secret misappropriation.

The clause that decided the appeal

Paragraph 12 of the NDA read in full:

The parties acknowledge and agree that their respective obligations under this agreement shall be continuing and, in particular, they shall survive the termination of any discussions or negotiations between you and [BladeRoom] regarding the Transaction, provided that this agreement shall terminate on the date 2 years from the date hereof.

The clause therefore does two things at once, and the parties fought over how far the closing proviso reaches. BladeRoom and the district court read the proviso as limiting only the “discussions or negotiations” clause, so that information disclosed during the two-year lifespan carried a continuing duty of confidentiality even afterward. Emerson read the proviso as limiting all of paragraph 12: the obligations ran on through any negotiations, but ended at two years regardless. On BladeRoom’s reading, Emerson’s later use of BladeRoom’s information in the Facebook competition could constitute a breach.

The Ninth Circuit adopted Emerson’s reading. Applying English contract-law principles, which treat interpretation as a “unitary exercise” balancing textual and contextual analysis rather than a “literalist exercise,” the panel held that paragraph 12’s natural meaning unambiguously terminated the NDA and its confidentiality obligations two years after signing. “Provided” naturally means “on the condition … that,” the conjunctive “and” put the two clauses side by side so the proviso modified both, and the phrase “this agreement” referred to the whole NDA everywhere else it appeared. The district court had erred by relying solely on context, the purpose of the deal and the trial record, without ever analyzing the clause’s natural and ordinary meaning. The panel reversed the in limine order, vacated the judgment, and remanded for a new trial.

The prejudice analysis is worth stating precisely, because it is narrower than it first appears. The court did not find that Emerson’s conduct fell outside the two-year window. It found the opposite of certainty: the evidence on timing was “murky,” with some evidence of breach during the initial two-year span and other evidence of breach afterward, and the special verdict asked only whether a breach occurred, not when. Because the jury never heard Emerson’s chief defense and could have found liability on either a correct or an incorrect legal theory, no one can tell which it used. That unknowability, not a finding that the conduct was too late, is what required vacating the breach, misappropriation, and damages findings.

Why a sunset clause is not the same as a survival clause

The heart of BladeRoom is the distinction between a termination clause and a survival clause. A termination clause says when the agreement ends. A survival clause says which obligations outlive that ending. Sophisticated NDAs routinely pair the two: the agreement terminates on a date, but the confidentiality covenants survive for a specified number of years afterward, or for as long as the information remains a trade secret.

BladeRoom’s NDA is a trap for the unwary precisely because it looks like it has both. Paragraph 12 does contain survival language: the obligations “shall be continuing” and “shall survive the termination of any discussions or negotiations.” What it survives, though, is only the end of the negotiations, not the end of the agreement, and the closing proviso then capped the whole thing at two years. Survival language aimed at the wrong event, followed by an unqualified sunset, bought BladeRoom nothing. The lesson is not that the drafter forgot about survival. It is that the drafter tied survival to the collapse of the deal talks rather than to the life of the information, and then let a proviso switch off the paragraph that contained it.

This produces a counterintuitive but doctrinally sound possibility: information that is still a protectable secret can be copied without breaching an NDA, simply because the contractual duty not to use it has expired. The trade secret does not cease to exist in the abstract; the contractual protection lapses. That distinction mattered here because BladeRoom’s case was litigated heavily on the NDA. Even the trade-secret claim rode on the contract, since under California law misappropriation cannot occur when a recipient is under no obligation to protect the information, and BladeRoom’s theory hinged on Emerson’s written obligations rather than any implied duty. When the contractual clock was correctly read, both claims had to be retried.

The decision also underscores how choice-of-law clauses can quietly drive outcomes. The NDA selected English law, and the Ninth Circuit’s task became one of applying English interpretive principles rather than California contract doctrine. The panel found the district court had misapplied English law by departing from the clause’s natural reading. Parties who import foreign governing law into a confidentiality agreement should understand that an American jury’s instincts about “what’s fair” will be filtered through that foreign lens on appeal.

Open questions

What happens to the misappropriation claim on remand? The panel vacated the misappropriation findings too, not just the contract findings, because BladeRoom’s theory hinged on Emerson’s written obligations under the NDA. Whether a misappropriation theory that does not depend on the expired contractual duty could still reach post-termination conduct is a question the remand had to sort out.
How would a survival clause have changed the result? A clause preserving confidentiality for a term of years after termination would likely have kept the relevant conduct within the protected period. The decision is, in effect, a demonstration of the absent clause’s value.
Does termination revive use rights immediately? The opinion treats the duty as ending with the agreement, but parties may dispute whether information acquired during the term carries any residual restriction once the contract lapses, absent a survival provision.

Implications

Tie survival to the right event, and check what a proviso swallows. It is not enough to write that obligations “survive.” State expressly that confidentiality obligations survive termination of the agreement for a defined period, or for as long as the information remains a trade secret, and make sure no proviso elsewhere in the same paragraph sunsets the whole thing.
Decide consciously how long secrecy should last. A two-year acquisition-diligence window may be sensible for the deal but disastrous for the secret. Match the confidentiality term to the life of the information, not the life of the negotiation.
Read choice-of-law clauses as substantive, not boilerplate. Selecting English (or any foreign) law means a foreign court’s interpretive canons may govern the meaning of your secrecy obligations.
Do not let a contract theory crowd out an independent misappropriation theory. Anchoring a case to an NDA that may have expired risks losing everything if the clock has run; plead and preserve statutory claims that do not depend on the contract’s duration.
Audit duration terms in existing NDAs now. A standard “terminates in two years” clause, common in deal NDAs, may be silently extinguishing the protection you think you have.

Frequently asked questions

How can a real trade secret be copied without liability? BladeRoom concerned a contractual duty of confidentiality, not the abstract existence of a secret. Paragraph 12 made the parties’ obligations survive the end of the deal talks, but a closing proviso terminated the whole agreement two years after signing. Once the agreement terminated, the contractual obligation not to use the information ended, so use after that date could not breach the NDA even if the information was still secret. The Ninth Circuit did not decide when Emerson’s conduct actually occurred; it sent that question back for a new trial.

Why did English law matter? The NDA selected English law to govern its interpretation. The Ninth Circuit therefore applied English contract principles and found the district court had misread the termination clause under those principles, relying only on the contract’s purpose and context without ever analyzing the clause’s natural and ordinary meaning.

What single drafting change would have avoided this? A survival clause tied to the right event. Paragraph 12 already made obligations survive the end of negotiations, but not the end of the agreement, and the proviso then terminated the agreement at two years. Language stating that confidentiality obligations continue for a set number of years after termination of the agreement itself, or for the life of the trade secret, would have kept the disputed conduct within the protected window.