It is common practice for participants in an M&A transaction to enter into a confidentiality or non-disclosure agreement before sharing proprietary information with each other. Not only do companies not want their proprietary information disclosed to the market, but they also don’t want the company they are in negotiations with to use that information for any purpose other than the transaction negotiations. For example, a potential seller does not want to disclose the names, capabilities and compensation of its workforce, only to have the buyer back out of the deal and then poach that workforce. Nor does a potential seller want to disclose its pricing model and vendor information only to the have the potential buyer use that information in a competitive bid to a new client. This is especially true when the companies involved are direct competitors.

In Martin Marietta Materials, Inc. v. Vulcan Materials Co., C.A. 7102-CS (Del. Ch. May 4, 2012) (see full opinion here), the Court held that Martin Marietta breached certain provisions of its confidentiality agreements with Vulcan Materials, with whom it had been in friendly merger negotiations, when Martin Marietta used proprietary information of Vulcan Materials in its attempt to perform a hostile takeover of Vulcan Materials. The Court held that although the confidentiality agreements did not include an express standstill, they did bar either party from certain uses and disclosures of proprietary information, that Martin Marietta breached those agreements, and that Vulcan Materials was entitled to specific performance and injunctive relief.

In this case, Martin Marietta tried to have its obligations to not disclose or use the proprietary information of Vulcan Materials very narrowly construed, and to have its permitted use of such information be applied broadly. The Court spent a lot of time focusing on the meaning of the terms “between” and “business combination transaction”, and decided that the terms were ambiguous enough that it looked at extrinsic evidence in resolving the case, including looking at the drafting history of the documents (including the advice and actions taken by counsel!) At the end of the day, the Court found that the term “between” was the most relevant, and based on a number of extrinsic factors that the term contemplated a negotiated transaction between the parties and did not include Martin Marietta’s hostile takeover attempt.

There is a lot more to this opinion (such as the distinction between the use of “a Transaction” versus “the Transaction”), but you’d expect as much from a 138 page opinion (again, linked here)! Of course, you have to appreciate any legal opinion that manages to reference Zooey Deschanel (see near the bottom of page 63 of the opinion).