how to use non-disclosure agreements (nDAs) and patents together

Do you want to meet all legal requirements for patents and trade secrets? Find how to use NDAs and patents together in this blog.

Often when you talk to potential investors, you need to share confidential information or trade secrets. Before you share your information, you need to consider a few protective actions.

It is best to not disclose information in the first instance. A non-disclosure arrangement (NDA) is recommended if you need to share information. You may need to share confidential information to potential partners such as investors and Contract Manufacturers, among others.

While communications with your lawyer is protected by the attorney client privilege, It is important to not assume that advisor conversations are automatically confidential.

To get advice, you may need to tell your advisors about your idea or business. However, as these advisors are not attorneys, they may not have any confidentiality obligations to protect your sensitive data. Such advisors could include:

  • Accountants
  • Banks
  • financial advisors
  • Insurance brokers
  • Business coaches
  • Marketing agency
  • Consultants

You might have to give your information to the person you’re talking to. These could include their professional advisors or employees. For this purpose, they may need to have access to your data. These disclosures to professional advisers and employees should be done in confidence. The NDA is a solution to protect your confidential information. 

1. What is an NDA?

An NDA It is a legal contract that protects trade secrets or confidential information. It outlines how you will share confidential information. NDAs are sometimes called confidentiality agreements.

According to the World Intellectual Property Organization, confidential information or Trade secrets are intellectual property (IP) rights on confidential information which may be sold or licensed. In general, to qualify as a trade secret, the information must be:

  • commercially valuable because it is secret,
  • be known only to a limited group of persons, and
  • be subject to reasonable steps taken by the rightful holder of the information to keep it secret, including the use of confidentiality agreements for business partners and employees.

In the US, although trade-secret laws can vary from one state to the next, the Uniform Trade Secrets Act is the gold standard for many states, and the Act defines a trade secret in the following terms:

•             information, including a formula, pattern, compilation, program, device, method, technique, or process,

•             that derives independent economic value, actual or potential, from not being generally known to or readily ascertainable through appropriate means by other persons who might obtain economic value from its disclosure or use; and

•             is the subject of reasonable efforts under the circumstances to maintain its secrecy.

The unauthorized acquisition, use or disclosure of such secret information in a manner contrary to honest commercial practices by others is regarded as an unfair practice and a violation of the trade secret protection. In general, any confidential business information which provides an enterprise a competitive edge and is unknown to others may be protected as a trade secret.

Trade secrets encompass both technical information, such as information concerning manufacturing processes, pharmaceutical test data, designs and drawings of computer programs, and commercial information, such as distribution methods, list of suppliers and clients, and advertising strategies. When you treat confidential information as your secret, restrict access to a limited need-to-know group, and take steps to keep the information a secret, IP rights are created that inure to your company.

A trade secret may also be made up of elements, each of which is in the public domain, but where the combination, which is kept secret, provides a competitive advantage. Trade secrets may protect other examples of information, including financial information, formulas and recipes, and source codes.

What information can an NDA Protect?

It is essential to decide what you want the NDA to protect. It can protect information that is recorded and marked as confidential in some form. It may also protect information shared in meetings and presentations.

In the NDA, you can limit the information and ideas you use for a permitted purpose. This could include the evaluation of your idea, or the discussion about a joint venture. You should specify the purpose of sharing confidential information in the NDA As precisely as possible. The permitted use can be extended later. Unfortunately, it is impossible to reduce the restrictions on your ideas and information later.

2. Consider how long confidentiality should last

It is common to limit confidentiality to three to five years. They will then be able use and disclose your data. Information that is made publicly in any way can be used and disclosed.

You  may specify that some information may be kept secret for life. Examples of such information  iinclude:

  • non-patentable know-how
  • Lists of customers
  • Personal information of the people involved in a project

You might be asked to sign a document by companies and organizations stating that they will not be held responsible for keeping your information or ideas confidential. If this is the case, you should carefully decide whether or not to disclose your ideas to them.

3. Types of NDAs

NDAs are possible One way Or Mutual. You can use a one-way  NDA If you only disclose information to another party, and in the mutual NDA, both parties agree to protect each other’s confidential information.

If you and the other party to the NDA are not in the same region or state, you must indicate which law governs the agreement and the location or venue of the trial. You may want to designate an exclusive jurisdiction to enforce the NDA in case of unauthorized disclosures made in another country.

Regardless of one way or mutual NDAs, you may want to have different strictness in your NDA form.  The details of the NDA agreement would changed based on risk tiers when it comes to disclosure of business-sensitive information. 

You can use a simpler NDA for Low Risk people such as investors and US vendors, while you can use a restrictive detailed NDA for High Risk parties such as international suppliers or competitors.

4. Before you meet

Don’t divulge any ideas or information until all parties sign the NDA and return it. Without an NDA, you are taking the chance that other people could use your ideas and information without your permission.

Always read the NDA carefully if asked by another party to sign. In addition, you should ensure that the NDA does not unduly restrict your future activities.

It is essential to ensure that the correct person signs the NDA. Such signatories can be:

  • A director of the recipient company
  • An officer of the company 
  • Someone senior with signature authority to execute the NDA

5. During your meeting

It is crucial to record the information you give in meetings and presentations. It would be best to ask people to sign a paper copy to prove that they have seen the presentation or technical drawing.

Keep track of the information you share in informal conversations or discussions. Notify where and when it took place.

6. NDAs  Have Limitations

There are many traps to avoid when you go the trade-secret route. Trade-secret protection is lost forever if the secret becomes public. You need to do everything “reasonable under the circumstance” to safeguard your secrets. It is determined on a case by case basis what qualifies as reasonable.

This could include having your employees sign confidentiality agreements, making sure that they understand what trade secrets should be kept, locking doors to keep information secure, and ensuring that your company has non-disclosure agreements. Trade secrets do not protect you against independent invention or reverse engineering.

Trade-secrets laws do not protect you from competitors who independently develop the invention. However, your competitors can also figure out how your product works, and create a rival product. As long as they don’t have access to your proprietary information, your rights under trade secrets law are not affected. Your competitors could be held liable for trade secret violations AND infringing the patent if the same invention was covered.

In cases where the invention is to be included in a public product, you might consider taking a hybrid approach. You could file patent applications for certain aspects of your technology while keeping other aspects confidential. For example, you might file patent applications for the unique features of a smartphone app’s user interface but keep the software, artificial intelligence (AI) matrix data, and back-end algorithms that make it work secret.

7. Consider patenting and NDAs together

Since the Supreme Court’s decision in Alice, many commentators have been quick to jump on the software-patents-are-dead bandwagon. While it has become more difficult to patent software-related inventions due to how Alice is being interpreted both by lower courts and the U.S. Patent and Trademark Office, software patents are still very much alive. With software accounting for swaths of the economy, software patents are needed.

Trade secrets offer many advantages over patents. A patent gives you the right to prevent others from using your invention. However, this protection is only valid for 20 years after the patent application was filed. Your invention will no longer be protected by any other person or company. Contrarily, trade secrets are forever, at least theoretically.

Trade secrets are not subject to expiry as long as they remain secret. Trade secret protection is relatively affordable compared to patent protection.

Trade secrets are not subject to a formal filing process or government fees. A specialist will not be required to prepare your application. You also won’t have to pay any additional fees for obtaining a patent which can be a lengthy and expensive process.

While software can be protected as trade secrets, this strategy may be viable for narrow circumstances. Trade secrets are not subject-matter eligible, unlike patents. Trade-secret protection can be granted to any confidential information that could give you a competitive advantage.

Trade secrets would protect any subject matter that could raise questions under Alice, as long as it is not susceptible to reverse engineering. This includes algorithms, software, and business methods. Information that is not patentable before Alice can be trade secrets. This includes sales and distribution methods, consumer profiles, advertising strategies, client lists, or client or supplier lists.  

You should consider filing patent applications and keeping the inventions in those patent applications confidential.   However, this dual identity cannot last forever, as an issued patent or published application will destroy any trade secrets protection for the invention. To use this strategy, file a provisional application first, and at the end of the provisional application, file a non-provisional application. 

This approach adds an extra year to the 18 month publication timeline.  You can also request non-publication of your patent application, but you can only file non-publication requests at the time an application is filed and you can rescind the request at any time. However, you cannot file such a request when patent protection is being sought simultaneously outside the United States.  

In sum, consider filing patents for your trade secrets to give you belt-and-suspender protection, at least for a limited time.  That limited time may be enough to give you the competitive lift you need. We did get more insights on this in our patenting insights article and our story on entrepreneurs’ experiences on going for a patent.