You signed an NDA so two companies could talk about a possible deal. The deal happened, the relationship ran for about two years, and then one side attached the other’s confidential audit report to a federal lawsuit. Was that a breach of the NDA? An Idaho court said no, because the NDA covered a possible relationship and by then the relationship was real. One sentence in the contract, the permitted purpose, decided the outcome.

The bottom line: the permitted purpose is the use restriction in your NDA, and it cuts both ways. Draft it too narrowly and the deal itself, or your ordinary business, can fall outside it. Draft it too broadly and the other side can do nearly anything with what you gave them. This post covers both sides of the table.

Part 3 of the NDA Essentials series closed by calling this the one line that decides whether your own ordinary use of what you received counts as a breach. It decides the reverse question just as often: whether what the other side did with your information was allowed.

Why One Sentence Does So Much Work

Most NDAs say the recipient may use confidential information solely to evaluate a potential relationship. Everything else in the NDA gets measured against that purpose.

The law leans on it too. Under the Oklahoma Uniform Trade Secrets Act, using a trade secret without consent is misappropriation when the user knew the information was acquired “under circumstances giving rise to a duty to maintain its secrecy or limit its use.” 78 Oklahoma Statutes § 86(2)(b)(2)(b). The federal Defend Trade Secrets Act uses nearly identical language. 18 U.S.C. § 1839(5)(B)(ii)(II). The purpose clause is how an NDA creates that duty to limit use, and it also defines consent. Use inside the purpose is consented to. Use outside it isn’t.

Courts start with the words you wrote. Oklahoma law gives effect to a contract’s language when it is clear and explicit, 15 Oklahoma Statutes § 154, and reads the whole contract together so each clause helps interpret the others, 15 Oklahoma Statutes § 157. A judge deciding what your purpose clause allowed isn’t going to ask what you meant when you signed.

Too Narrow: The Protection That Ended When the Deal Began

In Dickinson Frozen Foods, Inc. v. J.R. Simplot Co., 434 P.3d 1275 (Idaho 2019), Simplot faced a potato shred shortage in August 2014 and signed an NDA with a frozen foods processor it was considering as a supplier (“DFF”). The NDA limited use of the processor’s information to discussions about a “possible” vendor relationship. The two companies then did a deal. At some point after the parties had entered into the deal, DFF shared a confidential audit report with Simplot. About two years later, Simplot attached DFF’s confidential audit report to a federal complaint in a separate dispute, and a copy of the complaint later reached a lender. The Idaho Supreme Court held that was not a breach. The NDA covered a “possible relationship,” and once the parties entered an actual one they were no longer discussing a possible one. The court also rejected the argument that the NDA’s three-year confidentiality period kept the report protected, and noted that any ambiguity would be read against DFF, which had drafted the NDA.

Idaho may not be your state, and this decision doesn’t bind anyone outside of Idaho. But Oklahoma starts from the same place, the words on the page, and your state may as well. So if your state also starts with the language in the NDA, I wouldn’t bet on a court there reading “possible” more generously.

Part 1 of the NDA Essentials series stated the recipient’s version of this point: an NDA limited to evaluation doesn’t authorize using the information to later perform the contract. Dickinson is the discloser’s version. The same too-narrow wording that leaves a recipient exposed can leave the discloser unprotected. If your NDA is likely to turn into an MSA, say so in the purpose: evaluate, negotiate, and, if the parties sign a definitive agreement, perform it. Then make sure the MSA’s confidentiality clause covers what was shared before signing and says whether it replaces the NDA, because a broad entire-agreement clause can quietly do exactly that. My post on MSAs, SOWs, or both covers how those documents fit together.

Too Broad: When “Evaluate” Includes Deciding to Build It Yourself

The opposite problem showed up in Olaplex, Inc. v. L’Oréal USA, Inc., 855 F. App’x 701 (Fed. Cir. 2021). In 2015, L’Oréal explored buying Olaplex and signed an NDA that barred any use of Olaplex’s confidential information “other than to evaluate, negotiate and, if applicable, consummate a possible Transaction.” L’Oréal used Olaplex’s business information in a build-versus-buy analysis, asking whether to acquire the company or develop its own product. Olaplex called that misuse. The Federal Circuit disagreed: the NDA authorized that use, and Olaplex’s own co-founder testified that L’Oréal could use the information that way. Consent defeated the misappropriation theory on that information.

Olaplex also lost on other grounds, since much of what it called secret was public or too vague. The decision is nonprecedential and applied Delaware trade secret standards, so treat it as an illustration, not a rule. It’s a good one, though. “Evaluate” is a broader word than most founders realize, because evaluating a possible acquisition naturally includes asking whether you’d be better off building the thing yourself. If you’re the discloser, say in the purpose that using the information to decide whether to develop, acquire, or license a competing product isn’t a permitted use. If you’re the recipient, know that the broad reading helps you, and expect the discloser to push back.

A Tenth Circuit Example, and What the Clause Doesn’t Do for You

A purpose clause gets you a breach claim. It doesn’t get you damages. In GeoMetWatch Corp. v. Behunin, 38 F.4th 1183 (10th Cir. 2022), a weather-satellite company shared confidential business and technical information with an outside businessman’s company under a Mutual NDA dated November 6, 2013. The recipient agreed not to use the information for any purpose other than facilitating the development and distribution of the company’s systems and services. About six weeks later, the businessman’s group launched a new company, and the satellite company sued. It lost on summary judgment, and the Tenth Circuit, applying Utah law, affirmed. The company had no non-speculative evidence that the defendants’ conduct, rather than its own failure to meet its financing partner’s conditions, caused its losses. In short, the company failed to prove the defendant was the cause of its lost profits damage claim. The court didn’t need to decide what the NDA meant. The case turned on whether the company could prove harm.

A tight purpose clause makes the breach easy to describe. What it cost you is a separate element of the claim, and the records are the proof: what you shared, when you shared it, and what the other side did next. Part 9 of this series covers remedies.

Does Pasting It Into an AI Tool Count as Using It for the Purpose?

Let’s take an AI side trip. Say a recipient’s employee pastes your pricing model into a public AI chatbot to summarize it for an internal meeting. Arguably that serves the purpose. The real problem is where the information goes next, since public tools may retain what’s entered and use it to improve their models. A purpose clause that says nothing about AI leaves you arguing over whether a summarizing tool counts as an evaluation aid.

A July 2026 Carta Law article and a December 2025 Terms.Law guide land in the same place. Don’t ban “AI” across the board, since it’s built into tools like Microsoft 365, Google Workspace, Zoom, and Slack. Define generative AI, bar using your information to train or fine-tune any model, and allow enterprise tools only when the vendor is contractually barred from training on your data. My earlier post on why paying for ChatGPT or Claude doesn’t make your business data confidential explains why that last condition matters.

What Does Your Purpose Clause Actually Allow?

• Find the purpose sentence first. It often sits in the opening paragraph or recitals, not under a use heading.
• Replace “a business relationship” with what you’re actually doing, and say whether the purpose carries through performance of a definitive agreement.
• Look at the word “evaluate.” If you’re disclosing, decide whether the other side deciding to build instead is a permitted use. If you’re receiving, decide whether you want that door left open.
• List what is off limits: developing or improving a competing product, competitive analysis, and training AI models on the information.
• Check that the MSA’s confidentiality clause covers what was shared before signing, and says whether it replaces the NDA.
• Keep a dated log of what you shared and what the other side did next.

Something close to this sentence handles most of that list: “The Receiving Party may use Confidential Information solely to evaluate and negotiate a potential transaction between the parties and, if the parties sign a definitive agreement, to perform its obligations and exercise its rights under it, and for no other purpose, including developing or improving a competing product or service or training any artificial intelligence model.” Whichever side of the table you usually sit on, know whether each phrase in that sentence is working for you or against you before you sign.

Part 5 of this series turns to who is allowed to see confidential information: the affiliates, advisors, and contractors a recipient can share it with, and who answers if one of them gets it wrong.

This post is provided for general informational purposes only and does not constitute legal advice. Reading this post does not create an attorney-client relationship. Contact Ken McConkey to discuss your company’s specific confidentiality agreements.