Welcome to Innovation Café, where we demystify the tools and concepts every inventor and entrepreneur should know. Today, we’re taking a quick dive into non-disclosure agreements (NDAs). These simple yet powerful legal documents can safeguard your ideas, but they also come with potential downsides. Let’s break them down. Like all videos on this website, this is not legal advice.
What is a Non-Disclosure Agreement (NDA)?
An NDA is a contract that establishes confidentiality between two or more parties. By signing it, the parties agree that certain information shared between them will remain private and not be disclosed to others. If someone breaks this agreement, they can face legal consequences, including lawsuits.
NDAs are commonly used in business, especially in industries where sensitive information—like inventions or trade secrets—needs protection. It is important to note as well that disclosure of information can start a one year “on sale bar” clock, which can prevent you from getting a patent (more on that in another video). An NDA is one way to reduce the risk of starting that clock.
When to Use an NDA
NDAs are invaluable in several scenarios, especially for inventors and innovators:
- Protecting Unfiled Patent Ideas:
- If you’re discussing your invention with potential partners, manufacturers, or investors, an NDA prevents them from filing a patent on your idea before you can.
- Safeguarding Trade Secrets:
- Trade secrets, like formulas or processes, require confidentiality to retain their value. An NDA ensures that anyone you share these secrets with is legally bound to keep them private.
- Disclosing Pending Patent Applications:
- Sharing details about a pending, unpublished patent application with collaborators? Use an NDA to ensure the information doesn’t leak.
The Downsides of NDAs
While NDAs are useful, they’re not without drawbacks:
- Overuse in Deals:
- NDAs are often included in every deal involving patents, even when they might not be necessary. This overuse can limit your ability to discuss your work or share details about past deals.
- Restrictive Terms:
- NDAs can sometimes be overly broad, preventing you from discussing important matters or even sharing information that should be public.
- Enforcement Challenges:
- While NDAs are legally binding, enforcing them can be costly and time-consuming if the other party breaches the agreement.
A Note on NDAs in Innovation
Every patent-related deal I’ve been involved in has included an NDA. While this ensures confidentiality, it also means I can’t share many details about the deals I’ve done. This highlights the dual-edged nature of NDAs—they protect secrets but can also stifle open communication. Even more than that, they prevent me from having the credibility that my deal history would otherwise confer.
As an inventor, it’s essential to strike the right balance. Use NDAs to safeguard your ideas, but be mindful of their limitations and potential impact on your ability to share information. Remember also that a general rule of contract negotiation seems to be that whoever writes the check sets the contract rules. You can often negotiate away the NDA in exchange for giving up (often a significant) amount of the price you could overwise get.
Final Thoughts
NDAs are a vital tool for protecting your ideas and intellectual property, but they come with responsibilities and risks. Before signing or drafting an NDA, ensure you understand its terms and how it aligns with your goals.