A patent owner has enforceable patent rights; a patent applicant does not. Enforceable patent rights are granted when a patent issues, not when a patent application is filed. A patent issues years after filing the patent application, if at all. What may a patent applicant do to protect an idea while commercializing the idea prior to patent issuance? One option is a Non-Disclosure Agreement.
Barbara Petilli, an attorney practicing business law with a focus on contract negotiation, clarifies the issue: A patent applicant “should mitigate the risk of somebody taking his or her intellectual property and doing something with it that the patent applicant was not intending.” Ms. Petilli appreciates that if you want to commercialize your idea, you may have to share your idea. But, before you disclose your intellectual property and other proprietary information to others, there needs to be trust. She instructs, “Only do business with people you trust.” Even if you whole-heartedly trust your commercialization partners, you may wish to employ a contractual mitigation methodology, such as a Non-Disclosure Agreement, also known as an NDA. The NDA will memorialize what constitutes proprietary information and which party may disclose proprietary information.
Ms. Petilli sets the stage for using an NDA with a case scenario: “I am an inventor with an idea. I want to start creating a beta type for commercialization, so I need to disclose the specifications of my invention to a manufacturer, distributor, or developer.” Successful product development partnerships may require a patent applicant to disclose proprietary information, such as financial projections, pricing, or potential customers, in addition to patent specification information. Thus, the NDA needs to protect more than just the technical specifications and should cover all proprietary information to be disclosed.
One or both parties to the NDA may disclose any combination of proprietary information to be protected under the NDA. NDAs may be written mutual or one-way, depending on who discloses proprietary information. As Ms. Petilli explains, a mutual NDA “typically requires the inventor to keep the counterparty’s financial, technical, or commercial terms confidential.” A mutual NDA may be appropriate in the following situations:
- “I have hardware, and you have software and we both need to disclose our own technical proprietary information before we can talk about how we are going to integrate the two”; or
- “I am distributing your technology to my customers. The inventor may need to disclose its technical proprietary information, and the distributor may need to disclose its marketing proprietary information or commercial strategy before either party can evaluate the proposed transaction.”
At the core of a mutual NDA is balance – “I know that I’m signing up for the same thing the counterparty is signing up for.” However, “if you use a mutual NDA when only one party is disclosing, the disclosing party is at a disadvantage.” Ms. Petilli further explains that a mutual NDA is typically “watered down” for balance and speed of negotiation and therefore is “not as strict as it could be” to protect an inventor’s intellectual property from improper disclosure. An inventor who is the only disclosing party inadvertently becomes obligated to keep the counterparty’s proprietary information from unauthorized disclosure, and the protections on its own proprietary information may not be as strict.
Every NDA includes a definition of proprietary information. The question is whether the defined term is broad enough to protect the disclosing party’s information or too narrow, limiting the receiving party’s obligations for nondisclosure. Additionally, an NDA will expressly exclude from the definition of proprietary information, information which was or becomes generally available to the public other than as a result of disclosure by the receiving party. For example, information presented in a published patent application is no longer included in the definition of proprietary information and can be disclosed by the receiving party. The NDA remains in force for all other proprietary information, which does not appear in the published patent application.
NDAs are complex, contractual tools for protecting proprietary information during the patent application process. As described above, at the very least, a patent applicant must consider who is disclosing information and what information is being disclosed under an NDA. These and other variables define the business relationship and influence the NDA terms.
I want to thank Ms. Petilli for sharing her experience about NDAs. To learn more about Ms. Petilli’s business law practice, please visit Inflection Point Law (http://inflectionpointlaw.com/).
Hutchison Law, LLC has experience preparing and filing patent applications. To learn more about our patent practice, please contact us at 410-978-7287 or firstname.lastname@example.org.
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