Definitions and comparisons
What is a residuals clause, and why does it matter in data deals?
By SourceX Editorial · Reviewed by Noah Loul ·
Short answer
A residuals clause lets a party receiving confidential information use whatever its personnel retain in unaided memory without breaching confidentiality. It matters more in data deals, because a buyer's engineers study your records closely and a trained model can be argued to retain them. Most data owners strike the clause or narrow it so it never reaches datasets or models.
Key takeaways
- A residuals clause carves remembered information out of confidentiality duties, so it can quietly override the rest of an NDA or license.
- In data deals the risk is that memory gets read to include systems, datasets or trained models, not only people.
- Common narrowing edits limit residuals to the general skills of individuals and exclude licensed data, trade secrets and personal information.
- Residuals language often sits in evaluation NDAs and master agreements signed before the license itself.
Where do residuals clauses come from?#
Residuals clauses come from technology NDAs, where recipients wanted protection against claims that their engineers' later work drew on something they once saw. A software company reviewing a partner's product does not want every future feature challenged because someone remembers a design idea.
The clause typically lets the recipient use residuals, meaning information retained in the unaided memory of people who had access, as long as they did not intentionally memorize it. It usually states that it grants no license under the discloser's patents or copyrights. Recipients with large engineering teams ask for it often; disclosers with valuable secrets resist it.
A residuals clause is different from the standard confidentiality exclusions. Those exclusions remove information that was never really confidential, such as public or independently developed material. A residuals clause removes information that was confidential and still is, simply because someone remembers it, which is why disclosers treat it as a real concession rather than boilerplate.
What does residuals wording look like?#
Residuals wording usually has three parts: a definition of residuals, a grant letting the recipient use them, and limits. The sample below is illustrative wording written for this article, not taken from any real agreement.
Illustrative wording: Recipient may use Residuals for any purpose, provided that this right grants no license under Discloser's patents or copyrights. Residuals means information in non-tangible form that is retained in the unaided memory of Recipient's personnel who had authorized access to Confidential Information. A person's memory is unaided if the person has not intentionally memorized the information for the purpose of retaining it.
Each phrase carries weight. Any purpose sets no limit at all. Non-tangible form and unaided memory are the only real constraints, and the intentional-memorization test is hard for a discloser to prove after the fact.
Why residuals clauses carry more risk in data deals#
Residuals clauses carry more risk in data deals because the whole point of the deal is for the recipient to absorb the information. An engineer evaluating a dataset reads large numbers of records closely, and a model trained on it is designed to retain patterns from it.
- Memory can be argued to include systems: if personnel is not limited to people, a model, embedding index or derived dataset may be claimed to hold residuals.
- Use for any purpose can override the permitted-use definition in the license.
- Retained knowledge of specific records, such as how one customer configured a system, can resurface in later products or outputs.
- A broad residuals right can weaken the argument that you took reasonable measures to protect trade secrets.
- Deletion obligations lose force if remembered information is exempt from them.
What narrowing edits do counsel usually ask for?#
Counsel usually asks either to strike the clause or to narrow it until it covers only general skills and experience. The table lists common edits; which ones a deal needs depends on what is being shared and at what stage.
| Edit | What it changes | Why it matters for data |
|---|---|---|
| Strike the clause | Removes the residuals right entirely | The simplest outcome when the deal is a data license |
| Limit to natural persons | Memory means human memory only | Blocks claims that models, indexes or datasets retain residuals |
| Exclude licensed data and derivatives | Datasets, samples, derived data and models trained on them sit outside residuals | Keeps the permitted-use and deletion terms in charge |
| Exclude trade secrets and personal information | Those categories stay fully confidential | Protects the most sensitive content even if residuals survive |
| Limit to general skills and know-how | Covers general techniques only, not specific records or facts | Allows ordinary professional learning without covering your data |
| No deliberate reference or retention | Using notes, copies or repeated review defeats the residuals defense | Stops residuals becoming a route around return and deletion |
| License controls | The license prevails over any NDA residuals clause | Prevents an earlier evaluation NDA from undercutting the final terms |
Where residuals language hides#
Residuals language most often hides in documents signed before anyone focuses on the data license. By the time the license is drafted, an evaluation NDA may already have governed the delivery of sample records.
Read each of these for residuals, use and deletion terms before any sample changes hands, and keep a list of which ones remain in force once the license is signed.
- Mutual NDAs signed for early conversations or a sample review.
- Evaluation or proof-of-concept agreements covering sample records.
- Master services or platform agreements to which the data license is added as an order form.
- Click-through terms for data rooms or evaluation portals.
How a residuals clause interacts with the data license#
A residuals clause interacts with the data license through the order-of-precedence and entire-agreement terms. If the license supersedes the NDA, the residuals clause may fall away; if the NDA survives alongside the license, its residuals right may cut across your permitted-use limits.
Read both documents together. The license should state that it governs the licensed data and any samples, that no residuals right applies to them, and that earlier NDAs do not expand the recipient's rights. Saying so explicitly costs a sentence; arguing about precedence later costs far more.
Illustrative: a consulting firm narrows an evaluation NDA#
Illustrative: a fictional operations consulting firm plans to license de-identified project review notes and engagement playbooks. A prospective buyer sends a mutual NDA to cover review of a sample package, and the NDA includes a standard residuals clause.
The firm's general counsel proposes three edits: residuals apply only to the general skills of natural persons, samples and anything derived from them are excluded, and the eventual license will control. The buyer accepts. The sample is reviewed under evaluation terms that require deletion afterward, and the license later drafted for the full package contains no residuals right at all.
How SourceX treats residuals language#
SourceX looks for residuals language during Rights and again at Approval in the SourceX five-step transaction, because the supplier signs off on contract terms before Delivery. The initial fit check involves no files, so no records are exposed to a residuals clause at that stage.
The permitted use agreed for each package is written into the SourceX Evidence Packet. If an earlier agreement and the license seem to conflict, both sides have one record of what was actually approved.
Frequently asked questions
When can a narrow residuals clause be acceptable?
It can be when the clause is limited to the general skills of individuals and excludes licensed data, samples, derivatives, trade secrets and personal information. A practical rule: if records, samples or schemas will change hands under the agreement, strike the clause or narrow it this far; if the NDA covers only business discussions, a narrow version may be tolerable. Leverage on each side decides the rest.
What does unaided memory mean?
Unaided memory means what a person recalls without looking at notes, copies or the original material. The phrase is meant to separate learning from copying. In practice it is hard to prove what someone remembered unaided, which is why disclosers prefer clauses that exclude specific categories outright.
Should a residuals clause be mutual?
Mutuality sounds fair, but in a data license the information mostly flows one way. A mutual clause usually benefits the party receiving more, which is the buyer. Suppliers often accept mutual confidentiality terms while declining residuals altogether. If the supplier also receives buyer information, such as evaluation results, ordinary confidentiality terms usually cover it.
Does a residuals clause affect trade secret protection?
It can. Trade secret status depends partly on reasonable measures to keep information secret, and a broad right for the recipient to use remembered information can weaken that showing. Courts weigh the whole arrangement, so counsel should review residuals language alongside the other confidentiality terms.
Can we ask the buyer to certify it has not used residuals?
You can ask for a certification of deletion and of compliance with the permitted use at the end of the term, which covers most of the concern. A separate residuals certification is uncommon; removing or narrowing the clause usually achieves more than a later attestation.
Sources
- Under 18 U.S.C. 1839(3), information qualifies as a trade secret only if the owner has taken reasonable measures to keep it secret and it derives independent economic value from not being generally known or readily ascertainable. Source
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