It's common for inventors or designers to ask recipients of
confidential information to sign non-disclosure agreements. What's
less commonly known is that the best of these agreements work both
ways to protect the discloser and recipient of information.
An Agreement is No Agreement Until It is Signed
It's very common for intellectual property attorneys to have a
generalized form of non-disclosure agreement that they customize to
fit an individual client's needs. This alone shows that the form and
content of non-disclosure agreements are subject to a near infinite
degree of variation. The presentation of a non-disclosure agreement by
one party should not be a "take it or leave it" proposition, but an
invitation to engage in a meaningful discussion about intellectual
property security aimed at benefiting both parties. The bottom line:
Don't be hesitant to suggest changes to a non-disclosure agreement and
be prepared to offer reasons why these changes are fair and will
benefit the working partnership!
Unilateral vs. Bilateral Non-Disclosure Agreements
The most common "stock" agreement is a unilateral non-disclosure
drafted by the inventor that spells out the responsibilities of the
recipient of confidential information. But it's equally possible to
craft a bilateral agreement that recognizes the rights and
responsibilities of both parties. For example, manufacturers may have
confidential information about fabrication processes that could
benefit the designer or inventor who needs to craft reasonable product
specifications. These trade secret processes may be more valuable than
the article that is the subject of the agreement. Another example is
the sharing of evaluation results. Often, a manufacturer will conduct
extensive evaluations of proposed products. These evaluations often
contain valuable commercial discoveries by the manufacturer. While it
might be highly advantageous to share this information with the
inventor, the manufacturer needs to be protected against "shopping"
this information to another company.
Consider The Length Of "Lock Ups" Carefully, But Realistically.
Inventors have a reflexive wish to "lock up" confidential information
for as long as possible, often forever! Recipients, of course, seek
the shortest possible time. Look at lock up periods with a view toward
the market value of such information. If disclosure is of a basic
process of wide applicability, fairness suggests a longer confidential
period. High tech processes of narrow applicability may have no
commercial value within a few years, as technology speeds ahead. You
may be able to negotiate better overall terms in a non-disclosure
agreement by remaining flexible on lock-up times, at no real market
cost to yourself.
Watch Out For "Prior Knowledge" And "Parallel Development"
"Prior knowledge" is information that the discloser believes is
secret, but which in fact the recipient already knows from his own
experience or from other sources. The best agreements provide for
prior knowledge by imposing both a right and a responsibility for the
recipient to notify, within a reasonable time, the discloser that
certain information is already in its possession. "Parallel
development" covers information that the recipient, if it has an
ongoing development program of its own, might develop on its own that
duplicates the discloser's secrets. This can be a difficult issue to
resolve when the recipient company has an active R&D program of its
own, but needs to be addressed early because of the difficulty in
establishing proof of parallel development at a later stage.
Who Should Sign?
Many non-disclosure agreements provide only for the signatures of the
principals, that is, the inventor and the individual or company
receiving the information. This can be a mistake, more from a
practical than a legal point of view.
Principles of agency law generally make a company liable for the acts
of its employees, so a company would normally be responsible for any
unauthorized disclosures made by its staff. However, studies have
shown that employees who are required to sign personally are more
careful and responsible in handling confidential information.
Additionally, requiring employees to sign indicates a recipient's
commitment to manage information carefully and to control its use on
an ongoing basis. The best non-disclosure agreement is one that's on
the mind of everyone handling information, while the worst is one,
unread on the shop floor, gathering dust in an attorney's office.
While the chance of successfully pursuing a low-level employee who
makes an unauthorized disclosure may be small, having the employees
sign an agreement does create a legal cause of action against errant
employees. More importantly, it provides a moral and psychological
stimulus for employees to respect a discloser's confidences.
Both parties benefit from non-assignability in non-disclosure
agreements, that is, neither party may assign its rights and
responsibilities under the contract to another party. For example, a
builder may not sell its right to build a product to another and
include the confidential information it has received under the
non-disclosure agreement. The bedrock of non-disclosure in the real
world is the level of trust and thorough investigation that an
inventor undertakes before revealing information, regardless of any
written agreement. An inventor should not be expected to give up the
right to that kind of subjective character decision. Remember, a
non-assignment agreement is evidence of a special form of personal and
business relationship, and neither side should want uninvited third
parties at the table.
The take-away from this brief discussion of non-disclosure agreements
is this: Don't look on these as "form" documents to be signed, filed,
and forgotten. They can be tools for both sides to protect their
interests and to forge a commercial cooperation that leads to
benefits, and hopefully profits, for both sides.