Confidentiality/Secrecy/Non Disclosure Agreements - Clauses

Posted on March 14, 2010 by Richard Gearhart

In a previous post we were discussing the plight of a New Jersey inventor asking about confidentiality agreements. We discussed how they help not only keep your information confidential, but also protect your patent rights.

This follow up post discusses some of the clauses of the confidentiality agreements and which are important.

 

First, there is an obligation where the parties agree to keep the information “confidential”. Read the clause in your agreement carefully. Some clauses only require the receiving company to use “reasonable” efforts to keep the information secret. I don’t personally like this type of clause because using the term “reasonable efforts” is too vague, because who knows what is “reasonable”?. I prefer an absolute obligation to keep the information confidential – either you keep it secret or you don’t.

 

Also, if you are the disclosing party, you want to make sure that the agreement has obligations of non-use. Non-use obligations prevent the receiving party from using the information for anything other than the purpose of the agreement. So what? Well, if you are providing something that can be analyzed, they can analyze it unless you have language in the agreement that prevents it.  Or maybe they will use the information in a patent application (theirs, not yours).

 

Check whether the confidentiality applies to written disclosures, oral disclosures or both. Many confidentiality agreements only apply to written documents. You are happily chatting away and you assume you are covered. But you are not. You must follow up with a written summary for the information to be confidential. Many forget this requirement and their secrets aren’t secret any more.

 

Most confidentiality agreements have clauses that do not apply to information that is put in the public domain. This means once your patent publishes or you start selling online, many of your secrets disappear.

 

If you are signing with a larger company that is made up of smaller companies, keep in mind that you want all the companies to be bound by the obligations of confidentiality. Many times the smaller company shares information with the parent company or other smaller companies.   If the right company is not bound, there could be a violation or improper disclosure. Asking about this issue can help you understand where your information might end up in their business.

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Confidentiality Agreements

Posted on February 24, 2010 by Richard Gearhart

I received a call recently from a client in New Jersey who asked me if she needed a confidentiality agreement to discuss her invention with a potential manufacturer. A confidentiality agreement is an agreement to keep information exchanged between parties confidential. Confidentiality agreements are also known as secrecy agreements or non-disclosure agreements. They all essentially the same thing and serve essentially the same purpose.

Understanding confidentiality agreements is important tool to help an inventor to properly protect an idea. As an inventor you should be thoroughly knowledgeable about confidentiality agreements, when and how to use them during the commercialization of your idea.

 

You should try to get confidentiality agreements with everyone who will learn about your idea. No ands, ifs or buts. Don’t let anyone talk you out of this principle, or get sloppy on this issue. If your potential vendor or partner won’t sign an agreement then they may not be trustworthy and this is a red flag. You should carefully consider whether a relationship with this company or person is worthwhile and consider other options before moving forward without an agreement.

Getting a confidentiality agreement is especially important before you file a patent. There are several reasons for this.

 

First, a confidentiality agreement gives you at least some comfort that you have recourse if your secrets are breached.   It constitutes an agreement that whatever you tell the recipient about your invention, it will be held in confidence.   A confidentiality agreement can help you build a relationship with a vendor, supplier or investor and promote a free exchange of ideas. The act of signing the agreement also heightens the awareness of the confidentiality obligations with the parties. Of course, the existence of an agreement in and of itself is never guarantee and it is best to know and trust the people with whom you are doing business. But a confidentiality agreement can give you recourse if a mistake is made or you trusted the wrong person. You have at least some protection even if you haven’t filed a patent yet.

 

Second, US Patent law requires that any patent application filed must be done within one year of a public disclosure. Even minor disclosures under the wrong circumstances can start the one year clock. It is easy to lose track of the time between the disclosures and patent filing. You may inadvertently ruin your chances for a valid patent if you make such a disclosure. If a confidentiality agreement is in place between you and the recipient of the confidential information, the one year clock does not start when the information about your invention is exchanged. A confidentiality agreement gives you more time to file the patent. 

 

A confidentiality agreement is even more important if you plan to pursue international patent rights. Most countries outside the US have what’s known as an absolute novelty bar. Instead of giving a one year grace period, as does the US, countries with an absolute novelty bar consider any disclosure before the filing of a patent invalid. The absolute novelty bar applies for European countries, China, Latin American countries, etc. If any disclosure of the invention is made anywhere in the world before the first patent application is filed, the right to file a patent is lost and any subsequent patent claiming the application is invalid. Again, if a confidentiality agreement is in place between the inventor and the recipient of the information, the absolute novelty bar is not triggered, and the disclosure is acceptable.

 

Understanding when and how to use confidentiality agreements is important for your success. In later posts we will discuss confidentiality agreements in more detail.

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