by Michael Foycik
June 3, 2013
You (the owner) has an invention, a business idea, or a trade secret. To develop your invention, start a business, or talk with investors, you'll need to share information with these recipients, and you'll want protection before showing them anything. Many think an NDA (Non-Disclosure Agreement) will solve this problem, but there are major pitfalls to avoid. And, an NDA might not be the best solution anyway.
The biggest misconception, in my view: an NDA is intended to protect and help the owner of the invention, business idea, or trade secret. An NDA is much more likely to protect the recipient of the information, and not the owner. Let's see why that may be true.
Many NDA's provide for arbitration as a remedy rather than litigation, but that only benefits the richer party. Why? A court action can be filed for free or at very low cost, but an arbitration usually requires the payment of substantial fees up front, and more fees at later stages. When the recipient is a relatively substantial corporation or business, such fees may seem small, but to an individual or small businessperson such fees may be too great and they cannot enforce the NDA.
Normally, large companies fear litigation, and that is incentive for them to keep honest.
Another misconception: all NDA's are alike. Not at all. Each has to be studied in detail, because
many NDA's have fine print that lets the recipient off the hook. I have reviewed many NDA's over the years, and have found serious flaws in most of them: the legalese unbinds the recipient one way or another. Some unbind the recipient after a period of time, while others grant rights to the recipient. Some are written to be so confusing that they defy interpretation.
And, there is the misconception that an NDA is the best solution for safeguarding your rights. Often it is not. Keeping the information as a trade secret can be very effective due to the possibility of punitive damages when enforced by a court. There are steps that can readily be taken to secure and document trade secret status.
And, a provisional patent application can be an important – or even necessary – part of securing your rights. Why? The patent laws have been recently changed to a “first to file” system. Big problems occur when the recipient or someone they know gets your invention and files a patent application first. So, you should make sure to file first. A provisional patent application is a good choice for this since it is cheap to file and gives true patent pending status. Don't worry whether the invention is patentable: provisionals are not examined.