To protect your creativity, you need to act strategically. That’s really what it comes down to. There are no silver bullets, no magical one-size-fits-all solutions. And that’s okay. Because the good news is, there are a lot of tools at your disposal to help you! Lately, I’ve been fielding questions about non-disclosure agreements from inventors who want to license their ideas seemingly nonstop. Everyone wants to know: Are they protected? How much? What if a company they want to pitch refuses to sign a non-disclosure agreement? I want to set the record straight. Non-disclosure agreements can be helpful. They have their place. But they’re not an end-all be-all. Don’t place too much emphasis on them.
Non-disclosure agreements, also known as confidentiality agreements, are legal contracts that outline how proprietary information will be shared between at two parties and restricted to third parties. It’s worth noting non-disclosure agreements can vary significantly. For example, will the information disclosed by both parties be kept confidential, or just one? There are one-way agreements and two-way agreements, as well as countless variations. I’ve seen documents titled non-disclosure agreements that don’t actually keep anything confidential.
So when you come across one, what should you do first? Read it carefully. Mark Milhench, a patent attorney with almost twenty years of experience, said in an interview, “The most important thing for the person signing the agreement is to read it — read all of it! And if they don’t understand it, they should get advice before they sign it. I’ve lost count of the number of independent inventors who have signed non-disclosure agreements without reading them.” Until you become very familiar with them, and therefore fully understand what’s being established, I agree: Call in an attorney to be sure.
In particular, Milhench encourages inventors to pay close attention to terms that require them to demarcate what is to be kept confidential. For example, he’s come across agreements that stipulate material disclosed is only confidential if it’s marked in a particular way. He’s seen others that state oral disclosures are only confidential if confirmed in writing within 28 days.
This is how I look at it. When I reach out to potential licensees, I’m not terribly concerned about whether they’ll sign a non-disclosure agreement or not because I’ve already taken care of my own protection. How? By filing a provisional patent application. That’s what I recommend doing. (Please note: I am not an attorney. This is not legal advice.) The reality is, most companies will not sign your non-disclosure agreement. I get it. When I founded and grew a guitar pick company, I didn’t sign them either. At the time, I was coming up with a lot of ideas. What if an inventor shared with me an idea I had already been developing? It wasn’t worth the risk. It was too great of a liability. I needed to know what I was about to look at first.
For that reason, it doesn’t make sense to ask for a non-disclosure agreement right off the bat. Share the benefit of your idea with the company first. Pique their interest. If they ask for more information, like a prototype, ask to sign one then. That’s the perfect time. In most cases, you will be asked to sign theirs. Which makes sense — imagine how much effort the company would have to extend to keep track of all of the different non-disclosure agreements it had signed otherwise. Remember, your job is to make it easy for companies to say yes to you and your idea.
If you aren’t able to file a provisional patent application, like in the case of trade secrets, non-disclosure agreements can be extremely handy. Non-disclosure agreements are often limited to a specific time period, though. If your project has a long runway, meaning it’s going to take you more than a year just to get going, signing a non-disclosure agreement protects you by preventing disclosure.
If you’re dealing with a large company, I think signing a mutual non-disclosure agreement is critical. Both parties need to be able to discuss tactical information, like trade secrets and know how, freely. If you hire a freelancer to help you with your marketing materials or otherwise, have your patent attorney draft a non-disclosure/work-for-hire agreement that states very clearly that person has no ownership over the idea.
Look out for a “no reverse engineering” or “no modification of confidential information” clause. The intent of this clause is to prevent the party from using your information to inform or create a similar product — that’s really great verbiage.
Patent attorney Michael Nuestel put it well when he said, “Non-disclosure agreements are only going to keep an honest person honest. They’re not going to protect you from unscrupulous people.”
Non-disclosure agreements can be important. But only if you truly understand how they work, when to deploy them, and how much they really ‘protect’ you.
Originally published on Inc.com March 25th 2016.
