Confidentiality Agreements – an Overview
Category Inventing Advice
DOWNLOAD: Customizable Confidentiality Agreement (Word document)

Although most major companies will not sign an inventor's confidential disclosure agreement, and in fact insist you sign their own disclosure agreement, there are also many companies who are more than willing to sign. You may not hear very much about this; however, this author has frequently had confidential disclosure agreements signed by small to medium size companies. Since the key decision maker in most small to medium size companies is the president or owner of the company, it is easier to get them to sign disclosure agreements of this nature without extensive review by their patent counsel.

I've seen 20-page confidential disclosure agreements signed both by the person submitting the invention and the company. If an inventor is going to have a close, ongoing research and development relationship with a company, such a detailed type of agreement may be necessary. However, for the purpose of simply submitting invention to companies, I have found that companies much prefer simple one (or half) page agreements.

I have never ceased to be amazed by the number of presidents and vice presidents who routinely sign a confidential disclosure agreement for an inventor, like the one included here. The simplicity and the informality of the document makes it less threatening, so key decision makers in companies are more likely to sign it without having their attorneys review it first. The straightforward lay language makes it understandable for even the most anal company executive. The “unprofessional” handwritten fill-in-the-name lines seems to add to its informal flavor.

Please be aware that most Fortune 100 companies would not even consider signing anyone’s confidential disclosure agreement. On the contrary, the larger companies will generally allow you to submit an invention only after it is either patented, patent pending, or after you have signed their disclosure agreement in which you agree to rely only on the rights of your U.S. patent or any other official rights that you have under law. Even if a company is not willing to sign a confidential agreement, it is most important for them to at least recognize that whatever you present to that company shall remain your property, that they will not use your invention without your permission, and that you expect payment if they do use it.

SAMPLE USED BY DOCIE MARKETING DIVISION OF HCI, INC.

DISCLOSURE AGREEMENT

Beginning______________(date),____________________________("INVENTOR") and/or his/her agents or assigns will disclose know-how, patented and/or unpatented inventions, designs, trade secrets, etc. ("INFORMATION") which INVENTOR considers to be a valuable commercial asset, relating to:

(Title of invention and/or brief non-confidential description here – less is better)

The purpose of the disclosure is to allow confidential disclosure and communications between ____________________________________________(“COMPANY”) and INVENTOR to discuss said INFORMATION. This is not an offer to sell.

1) It is understood that no obligation, express or implied, is assumed by the COMPANY unless and until a formal written contract has been entered into and the obligation of the COMPANY shall be only such as is expressed in the formal written contract. INFORMATION disclosed to COMPANY shall remain property of INVENTOR.

2) COMPANY agrees that disclosed INFORMATION will be held in strict confidence, and INFORMATION will not be disclosed to any other persons outside the COMPANY, or used within the company, without prior written consent from INVENTOR. INFORMATION released within the COMPANY shall be on a need-to-know- basis.

3) COMPANY shall not be bound to secrecy when COMPANY can document that said INFORMATION was:  1) previously developed by COMPANY, its divisions, subsidiaries or affiliates, or, 2) disclosed to COMPANY by a third party completely independent of this or prior disclosures by INVENTOR, or, 3) if said INFORMATION is found in the public domain.

These terms are agreed to by:    

____________________________________________
Signature         Date
____________________________________________                       
Name            Title
___________________________________________
        Company

(Only the company representative needs to sign this agreement, not you the inventor.)

In Docie Marketing’s confidential disclosure agreement, we start off by describing the purpose of the communication between the inventor and the company. This is stated in a very friendly way. Next, we assure the company that they are under no obligation as a result of receiving information from the inventor. This element is very important to companies. It simply means that you do not expect them to be liable for reimbursing you unless there is a formal, written agreement between you and the company. We then slip in the statement that “any information submitted to the company will remain the inventor’s property.”  This is the clincher. The company is agreeing ahead of time that the invention is yours and not theirs.

We also explicitly state, “This is not an offer to sell.”  The reason for this is because if it is ever construed that you are offering to sell your technology or sell your invention to third parties, it may start the one-year time limitation in the Patent Office. This can affect the filing dates for your U.S. and international patent applications. This is why it is important to keep the invention in the experimental phase for as long as possible and not offer to sell the invention until you are ready to accept the repercussions of how it affects your patent rights.

Some patent attorneys have assured me that when you offer to license your technology to a company, or if you offer to sell the technology, and not necessarily the products themselves, this is not construed as an “offer to sell.”  So it will not effect your time bar until that company sells the invention in its final form in the marketplace. Other attorneys have told me that this is a gray area. Therefore, we like to be safe rather than sorry. We include a disclaimer regarding the sale of an invention whenever appropriate.

Clause 2 is where the company agrees to hold the information about the invention in strict confidence. It is important to follow this clause with an exception. In clause 3 we specify the terms in which the company shall not be bound to secrecy. This clause is particularly important to help add a comfort level for the company. As we have said, many companies are concerned that an outside inventor will submit an invention that has already been developed in their company. They are also concerned about the possibility that two inventors will come to them independently and submit the same invention.

Clause 3 helps to relieve these concerns. The exceptions in clause 3 are the reason why we titled the agreement a “disclosure agreement” versus a “confidential disclosure agreement.”  If the company falls within the exceptions listed under the third clause, the agreement is no longer confidential in nature. Nonetheless, even though the company may no longer be bound to strict confidence as a result of the exceptions in clause 3, remember that they have still agreed that the information about the invention shall remain the property of the inventor. If two different inventors outside their company are making claims for the same invention, it is then up to those inventors to duke it out with respect to which one of them was the first to invent.

These confidential disclosure agreements must be taken with a grain of salt. Some inventors are fearful that the company will change dates on documents to suggest that they invented the outside inventor’s invention prior to that inventor’s disclosure to the company. The fallacy in this fear is that the company really doesn’t know the original date of invention. The outside inventor may have documentation of originality dating back a year or two. So the question is, how far back must the company manipulate its dates?  

In our 30 years of experience, we have never had a problem with this. In fact, we've never experienced it at all. Remember, you can have a hundred page disclosure document and there’s nothing stopping someone in the company from tipping of their cousin Benny in New York about the invention. You would be hard pressed to prove the connection. The bottom line is, these agreements are no better than the integrity of the people within the company. This is why it is of utmost importance to pre-qualify the company to whom you are submitting your invention.

Docie Marketing endeavors to pre-qualify companies that we submit inventions to on behalf of our clients. We find out if the company has a positive track record of honoring the rights of outside inventors. Has the company licensed outside inventions?  What are the names of inventors to whom they are paying royalties?  Has the company ever been in litigation over patent rights?  As we said earlier, publicly held companies are required to submit information about lawsuits, including those involving inventors, in their SEC 10-K form that must be provided upon request. This is a requirement of the Securities and Exchange Commission and is highly regulated.

If a company fails to disclose such information in writing, they can suffer severe consequences far beyond their liability to the inventor. Although it is harder to ascertain this information in private companies, since private companies are more closely held, it is easier to ascertain the mentality and track record of the company through its reputation, and by learning more about the person(s) or family who controls the corporation.

We do not anticipate that you will be able to go out and have your disclosure agreement signed by dozens of key decision makers in industry. But since having disclosure agreements signed by companies is a daily occurrence at Docie Marketing, we are usually able to influence key decision makers to sign them when independent inventors cannot. It is simply a matter of experience and know-how.

It can be a disadvantage to have an attorney to submit such a confidential disclosure agreement to a company. This is because attorneys typically prefer to communicate with other attorneys. If an attorney submits an agreement to a key decision maker in a company, that key decision maker will be more predisposed to have the company's attorney review it first. This can not only cause delays, it can result in a diluted disclosure agreement. Not to mention the added cost to you.

We are not suggesting that it is never appropriate to have your attorney be involved in the signing of agreements on your behalf. There are, of course, complex situations where it would be extremely crucial to have your attorney represent you every step of the way. This will depend on the overall potential of your technology and it will be a reflection of the overall strategy that you’ve chosen to undertake. This is why we at Docie Marketing routinely communicate with our clients' patent attorneys to make sure that there is continuity in the submission process. This is a matter of cost versus risk, and I’m sure by now you're getting the idea that every situation is unique.

DOWNLOAD: Customizable Confidentiality Agreement (Word document)

Excerpted from, The Inventor’s Bible: How to Market and License Your Brilliant Ideas, Copyright 2001, 2004, Ten Speed Press, a Crown Publishing imprint of Random House, All Rights Reserved.
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