Full Disclosure on Non-Disclosure Agreements

If you are working in a technical field as an engineer, and odds are you do, if you are reading this blog, then you have almost certainly come across a few Non-Disclosure Agreements (NDAs). You have probably been asked to sign one or have asked someone to sign one. NDAs are not, by any means, restricted to the technical world, but their close tie to patents and patent applications make them very commonplace in our field of turbomachinery. In this blog, I’ll briefly dissect the anatomy of NDAs, explain their dual purpose, and share a few pitfalls to watch out for as well.

At its core, a good-quality NDA defines the type of information that will be protected, how long it should be protected, and when the responsibility to protect the information may be alleviated. The document should also include several formalities, such as a choice of law/venue, export control disclaimer, a statement regarding no transfer/grant of rights in the information, a statement that the received information will only be used for the defined purpose, and durations for both the agreement itself and the length of time the information should be kept confidential. Lastly, both parties should sign the NDA, which seems obvious but you’d be surprised…

The main purpose of an NDA is pretty obvious. A party sharing key proprietary information wants to make sure that it isn’t used by the recipient for counterproductive reasons or released in a potentially harmful way, out of their control. There is also a secondary purpose to NDAs that may not be as obvious. In my last blog, I spoke at length about patent applications under the America Invents Act (AIA) and the danger that disclosures pose to patent applications. In short, in the U.S., an idea that has been disclosed to the public more than a year before the application is filed is not eligible for patent protection, and in most of the rest of the world, you don’t even get that one year grace period. So, what do NDAs have to do with this? Both in the U.S. and internationally, information disclosed under an NDA is not considered a public disclosure, making the NDA an important tool in the arsenal of an R&D group. There are, of course, some caveats and limitations to this rule, but the basic concept is, again, that disclosure under an NDA is not a public disclosure for patent filing purposes.

Some things to watch out for include:

• NDAs that include ownership of derivative works - Companies may have a legitimate reason for doing so, but this can tricky if the relationship is going to be one of client/service provider. Inevitably, you, as a service provider, will be creating something based on the client’s information. Make sure that you have enough information, at this early stage in the relationship, to be OK with complete work for hire. It is often the case that you just don’t know enough yet to see how the job will mesh with your exiting Intellectual Property.

• One-sided NDAs - If you intend to also share information with the other party, you’ll want to be equally protected.

• Old NDA coverage - Don’t assume that the old NDA you remember signing with your client is still valid. They, generally, only last for about three years, with a confidentiality responsibility of about ten years.

If you only learn one thing from this, it is that NDAs are important and sometimes complex contractual documents, so be sure to read (and understand all implications) before signing!

The material contained herein is meant to be informational only, and is not intended to be nor should be considered legal advice.  I urge you to seek out professional counsel if you have specific questions regarding any of the topics addressed within this hypothetical.