What is a residuals clause?

A residuals clause is a confidentiality provision that may let a recipient use information retained in an employee's unaided memory, subject to the agreement's definition, exclusions, purpose limits, and other protections.

How does a residuals clause affect trade secrets?

A broad residuals clause may allow use of information that includes trade secrets or other sensitive technology, which can increase the disclosing party's risk and make later misuse harder to prove. Review the definition and exclusions rather than assuming trade secrets are protected.

Does a residuals clause permit disclosure?

Not necessarily. Some clauses permit internal use of retained information while preserving a separate prohibition on disclosure. Others may be broader, so the agreement's residuals, confidentiality, and non-use language must be read together.

Should a residuals clause exclude source code and customer data?

The disclosing party should evaluate express exclusions for source code, algorithms, credentials, customer data, personal data, pricing, security information, product roadmaps, and other information that could create material competitive, privacy, or security risk.

How does a residuals clause interact with intellectual property ownership?

Residuals language should not silently transfer or license intellectual property. The agreement's ownership, license, independent-development, feedback, and derivative-work provisions determine whether later work can be used and who owns it.

Residuals Clause: Memory, Trade Secrets, and NDA Risk

What It Does

A residuals clause can change the practical boundary between protected confidential information and information the recipient may continue to use.

Creates a memory-based exception: The recipient may be allowed to use information retained in unaided memory, subject to the clause's definition and exclusions.
Changes post-termination risk: A broad clause may continue to permit use after the NDA or project ends, even after materials are returned or destroyed.
Separates use from disclosure: Some provisions permit internal use but preserve a prohibition on disclosing the discloser's confidential information. Other language may be broader, so the agreement must be checked rather than assumed.
Affects trade-secret protection: If trade secrets, source code, algorithms, customer information, pricing, or security information fall within the residuals definition, the disclosing party may face a larger burden in protecting or proving misuse.
Interacts with intellectual property: Residuals language should not silently grant ownership of patents, copyrights, trade secrets, or other intellectual property. An express license or ownership clause may change the result.
Creates contamination risk: A recipient may later work on a competing or similar project with personnel who reviewed the discloser's information. The parties should decide whether personnel separation, clean-room procedures, or category exclusions are required.
Preserves other restrictions only if stated: A residuals exception does not automatically override purpose limitations, non-use duties, security controls, export rules, privacy obligations, or customer commitments. The agreement should state how the provisions interact.

When You'll See It

Mutual and one-way NDAs: Residuals language is often proposed by the recipient in technology, commercial, financing, and strategic partnership discussions.
Software and technology evaluations: The parties may debate whether general ideas, product concepts, interfaces, algorithms, source code, and technical details can be retained or used.
Services and development agreements: A vendor may want to use general knowledge gained through a project, while the customer needs to protect its data, roadmap, and product-specific information.
M&A and diligence: A potential buyer or investor may seek to preserve general knowledge after a transaction does not close. The target may need exclusions for trade secrets, customer data, pricing, and deal-specific information.
Joint ventures and collaborations: Shared development can blur the line between pre-existing information, jointly created information, and information retained from the other party.
Employee and representative access: The definition may reach information retained by employees, contractors, affiliates, advisers, or other permitted recipients. Check who is covered and who is responsible for their use.
Return or destruction obligations: A residuals provision may continue after physical materials are returned or destroyed. Confirm whether backups, notes, source repositories, and system logs receive separate treatment.

Examples

Applied Intuition, Inc. / Kodiak Robotics, Inc.

Master Software Subscription License AgreementBroad residuals use rightOne-Sided2025

"the Receiving party may use and exploit Residuals for any purpose without restriction or obligation"

Source

Western Digital Corporation / Hitachi, Ltd. / Viviti Technologies Ltd.

Fifth Amendment to Stock Purchase AgreementResiduals definition in bilateral services termsMutual2012

"As used herein, “Residuals” shall mean that portion of any trade secret or other Technology subject to any obligation of confidentiality between the Parties"

Source

Negotiate

Disclosing Party Positions

Exclude trade secrets, source code, algorithms, security credentials, customer data, personal data, pricing, product roadmaps, and deal-specific information from residuals use unless the business has deliberately accepted that risk.
Limit residuals to information retained in unaided memory, and exclude information that was intentionally memorized, recorded, copied, downloaded, or reconstructed from materials.
Preserve the prohibition on disclosure and any purpose limitation after the residuals exception applies.
State that residuals create no license or ownership right in patents, copyrights, trade secrets, source code, trademarks, or other intellectual property.
Limit use to general skills and experience or another defined category that does not reach identifiable confidential information.
Require the recipient to maintain reasonable safeguards, avoid use in a competing project where appropriate, and follow privacy, security, and export obligations.
Keep the residuals exception subject to the agreement's remedies, injunctive relief, return or destruction rules, and survival provisions where those protections are intended to continue.

Recipient Positions

Define residuals clearly so ordinary professional knowledge, skills, and experience are not treated as perpetual confidential information.
Limit the exception to information retained in unaided memory without reference to written or electronic materials.
State whether the recipient may use residuals internally, in product development, in services for other clients, or for other defined purposes.
Identify the people whose retained knowledge qualifies and avoid responsibility for an unrestricted universe of affiliates, contractors, and advisers.
Coordinate residuals with independent-development records, clean-room procedures, open-source obligations, and pre-existing intellectual property.
Make clear that the exception does not require disclosure of the discloser's information and does not impose ownership of the recipient's independently developed work.
Set a reasonable term and explain whether residuals can be used after expiration, termination, return, or destruction of confidential materials.

Use Playbooks to compare the agreement's residuals, confidentiality, and intellectual property positions against approved review guidance, then use GC AI for Word to review the relevant provisions in the document. Counsel should confirm the treatment of trade secrets, personal data, source code, and independently developed work before relying on the result.

Red Flags

The clause permits use of residuals for any purpose without excluding trade secrets or other high-risk information.
Residuals are defined as anything an employee has seen, rather than information retained in unaided memory.
The provision does not distinguish unaided memory from intentional memorization, notes, downloads, recordings, code repositories, or written materials.
The agreement permits use but does not preserve the prohibition on disclosure or address downstream recipients.
The residuals exception is inconsistent with the confidentiality definition, purpose limitation, license grant, or intellectual property ownership section.
Source code, algorithms, credentials, customer data, personal data, pricing, or product roadmaps are not addressed expressly.
A recipient can assign personnel to a competing project immediately after reviewing sensitive information, with no conflict or separation controls.
The clause continues after return or destruction without explaining how the parties will treat backups, logs, notes, or retained copies.
The term, governing law, remedies, and burden of proof are ignored even though the dispute may turn on what someone remembered and used.
The clause uses residuals as a label but does not identify which categories of information are covered or excluded.

Residuals Clause