If you've developed a potentially marketable
invention, you are faced with a dilemma. To make money from the invention, you
must generally license the rights to it to another business, often a
manufacturer or distributor. But in pitching the invention to potential
licensees, you run the risk of disclosing so much information that the
invention might be stolen or no longer protected by law.
Horror stories abound of unscrupulous businesses
who feign disinterest in the hard work of an inventor, only to turn around and
use the inventor's description of her work to steal the invention for
themselves--and reap huge profits. Some inventors have fought back in court and
won millions--money that rightfully should have been theirs in the first place.
One study determined that trade secret owners prevailed in 75% of the cases--poor
odds for parties planning to steal. But winning these cases isn't easy or
cheap.
Filing A Provisional Patent Application
So how can you shop your invention around
without jeopardizing your rights? If your invention potentially qualifies for a
patent, it may be worth your while to file a provisional patent application ($80 for small companies) and obtain "patent
pending" status. Most often, this will deter rip-offs.
Using Nondisclosure Agreements
However, if you determine that the invention is
probably not patentable, the best way to protect yourself is to have
prospective licensees sign a nondisclosure agreement (sometimes called a
disclosure agreement or confidentiality agreement) before you disclose any
secrets. If someone signs a nondisclosure agreement and later uses your secret
without authorization, you can sue for damages.
Nondisclosure agreements vary in format. Generally,
they contain these important elements:
--What's Confidential. Every nondisclosure
agreement provides a definition of confidential information or trade secrets.
It also specifically excludes some information from protection, meaning that
the receiving party has no obligation to protect that information. Information
is not protected if it was created or discovered before or independent of any
involvement with you.
--Obligations Of The Receiving Party. The person
or company you're sharing confidential information with generally must hold the
information in confidence and limit its use. Under most state laws, the
receiving party cannot breach the confidential relationship, induce others to
breach it or induce others to acquire the confidential information by improper
means. Most companies accept these obligations without discussion. If you enter
into a mutual nondisclosure agreement (where you also agree to keep information
confidential), you should also feel comfortable with these requirements.
--Time Periods. How long must the information be
kept confidential? This issue is often a subject of negotiation. Disclosing
parties want a long period; receiving parties want a short one. Five years is a
common length in the United States, although many companies insist on no more
than two or three years. In Europe, it is not unusual for the period to be as
long as ten years. Ultimately, the result depends on the relative bargaining
power of the parties.
One factor in negotiations may be the shelf life
of your idea. Ask yourself:
--How long will it be before others stumble upon
the same innovation?
--If the product were licensed in the next year
or two, how long would it be before the secret would be figured out?
If the answer to these questions is only a few
years, then you are unlikely to be damaged by a shorter (two- to three-year)
period.
Disclosing Without An Agreement
It's always safest to get a prospective licensee
to sign a nondisclosure agreement, but you may not always be able to convince
them to do so. When that happens, you are left in a vulnerable position. If you
disclose crucial information without the agreement, you risk losing your rights
to the invention. If you don't disclose it, you risk losing a business
opportunity.
Probably the most important factor to consider
is the reputation of the person or company you're dealing with. If the company
has a poor reputation, the dangers of losing your secrets outweigh the business
opportunity.
If you decide to go ahead and disclose, proceed
cautiously. Here are some tips.
--Disclose "Around" The Secret. A
licensee is primarily concerned with two questions about your invention:
"What does it do?" and "Is it profitable?" Try to determine
if there is a way to present your invention and an estimate of its costs
without disclosing trade secrets. If you can give a company this information,
it may enter into a nondisclosure agreement.
--Establish A Confidential Relationship. A
confidential relationship can, in some cases, be established without a signed
agreement. An "implied" confidential relationship occurs when the
conduct of the parties indicates that they intended to create one. An implied
confidential relationship gives you legal rights similar to those created by a
written agreement, but it is always more difficult to prove that an implied
relationship existed.
A confidential relationship can be implied if
certain factors are present:
--The person you gave confidential information
to solicited the idea from you--you did not send it without prompting;
--You indicated that the invention was a
business proposition and you hoped for payment;
--At the time of disclosure, you requested that
the information be kept secret; and
--The information is a trade secret--it has
commercial value and is not known by competitors.
