So you’ve just thought of this great concept and you’ve put together some kind of prototype to convey your project and show investors, prospects, or contractors what your idea would shape into once funded.
Congratulations, you’ve taken your first step towards building your Intellectual property portfolio.
Now you need to determine the right time to disclose it and who you'll disclose it to!
To do so, here's what you need to ask yourself.
Should my secret idea remain secret?
Under most legal systems, an idea, by itself, if not expressed into some form of medium so as to reveal its usefulness, novelty and/or originality, is not afforded any protection from an intellectual property perspective.
So when you actually put your idea into some kind of prototype, or if you write down what it’s all about, and try to show how it would look like once your project is on track, then you’ve taken your first step towards protecting your idea and turning it into IP, so that it no longer has to remain secret.
Now that it is expressed in some form, you can have it registered as a copyright, a patent, a trademark, or patent design, depending on its form. For a detailed post on the difference between those and what protection to choose, check out our Intellectual Property White Paper.
Yet, some ideas or concepts can be valuable to your company even though they cannot be expressed in one particular visual prototype or via a set of explanatory documents. It may be too early, the method may not be sufficiently developed to support a patent application as of yet, or you may not have gathered enough funding to file.
Or it may just be that the value of the document simply resides elsewhere than in intellectual property. Customer data, hiring plans, forecasts, for instance, are not protected as such under IP laws.
But, because their value is immense for a business, the law will recognize the interest you have in keeping those secret under two conditions: the information is not yet available to the public, and the person with whom you shared the information has agreed in writing to keep that information secret.
So when the information you need to share doesn’t qualify as an IP assets per say, you need to take other steps to protect it.
What can I do to limit disclosures?
The first step is to assess whether you need to disclose the information and how much information to disclose.
Once you’ve determined exactly how much information you need to share and who will be authorized to have access, you need to make sure the person you disclose it to recognizes the information as confidential through the signature of an NDA, or via the acceptance of a confidentiality obligation in a different contract (employment, work made for hire, contractor, manufacturing etc…).
NDAs are non-disclosure agreements, confidentiality agreements. They are contract between two parties who agree to exchange and/or receive information for a given purpose – usually evaluating a potential business relationship -- and where one party (or both) agrees to keep what she/he receives in strict confidence.
Good NDAs also state that the information received is shared for the sole purpose of the NDA and does not convey any rights into it. They also warn that the disclosure should not raise expectations as to whether the business relationship envisioned will actually be fulfilled.
What NDAs don’t cover
WARNING: NDAs are not your one-stop document that will cover all IP and confidentiality needs. In fact, they are wider in scope but smaller in effect. They only cover the confidentiality aspect of non-public information. But the confidentiality obligation they entail can covers a wider range of intangible assets than mere IP rights.
They cover any type of documents (including ideas and including documents that are not susceptible of IP protection) provided that the information has not been made publically available.
As such, NDAs are not capable of inducing an intellectual property protection, or granting a person intellectual property rights over information shared or work performed, because they are just not meant for that. It is not their purpose.
Their purpose is to merely states that the person receiving the information needs to hush about it, and refrain from using it for any other purpose than why it was divulged in the first place.
So, if you’ve already decided that you were going to hire a particular contractor, the NDA does not even begin to cover your needs.
When you do hire a contractor, sure you’ll need her to protect your information from unauthorized disclosure but you’ll also need to obtain rights in and to the work product. You’ll also need to provide for milestones, and an approval process.
So signing just an NDA when hiring a contractor is not sufficient. In fact, it might even be counter-effective. Here’s an example:
Great company sells an awesome app and needs new features developed. It selects a contractor and has him/her sign an NDA, then starts providing the codes to contractor to allow her to begin work. Awful Programmer provides flawed code that Great Company ends up having to rewrite and now claims Great Company owes the amount agreed to for the work product.
Great Company searches in the NDA ways to refuse payment. There are none. It’s not the NDA’s fault. It just wasn’t programmed to cover these situations. His bigger brother, “Work made for hire” does cover those, and we’ll tell you all about them in an upcoming post.
One-way or two-way NDA?
NDAs can work one way (only one person receives information and agrees to keep it confidential) or two-ways (both parties recognize that the information they will share needs to be kept secret).
If you are planning on exchanging information with a contractor to allow that person to assess the work to be done, or provide a quote, chances are the contractor will only be sharing information with you that are already publically available. So there wouldn’t be any reason to enter into a two-way NDA.
Remember, the two-way or bilateral NDA actually binds both parties and burden your company with confidentiality obligations. As such, it may provide grounds for the other party to go after you if they feel you are using information they’ve shared with you.
Say the information you need to exchange with a programmer are pieces of codes (so that she can assess whether he can build a new app for your company). If the NDA you sign is two-ways, and you end up not choosing that particular contractor, you’ll still have obligations towards that unwanted contractor. Say that contractor then uses your codes, develops an app while you are doing the exact same thing. The contractor has no right to do so. It says so in the NDA. But because the NDA also says you cannot use the information that the contractor shared with you, you’ll now need to tell apart what’s yours from what’s his. With a one-way NDA, you only need to demonstrate that your code is used.
If your contractor is asking for a two-way NDA, identify the information that he/she will be providing to you. Inform your contractor when you believe those are already publically available. Then, make sure the information you recognize as confidential do not include the work product she may provide in the future, or the terms of your relationship.
If you are planning on exchanging information about your business with persons who won’t be providing you work product, but will need to also ensure that their own information are in trusted hands, then a two way NDA can be envisioned.
But for any NDA to be enforced, it needs to comply with certain often overlooked formal requirements.
How can I make sure my NDA will protect my data?
Common sense (which is often what business law is about), will tell you that the best way to keep a secret is to avoid sharing it.
The minute you start sharing a secret, it no longer becomes one.
An NDA is all and well and good, and actually can help you inform the persons you are disclosing your information to about what they risk if they start disseminating your information to other persons.
But the truth is that once the information is leaked, the harm is done, and nothing will really make up for the troubles you’ll endure, the loss of time and money, even if you do end up going after the person who let the cat out of the bag.
Remember that an NDA is just a contract - not a magic tracker that will let you know when the other side breaches the confidentiality obligations (lets the cat out of the bag).
Because it is a contract and you might have to have it enforced at some point, you want to make sure you can actually go after the person who is using your confidential information.
The way to do that is to anticipate upon signing the agreement that in order to use it, you’ll need to be able to send an official letter to that person.
If you are dealing with an individual located in the country in which you are doing business, here’s what you need to include and attach to the NDA:
· Individual first, middle and last names/company name
· Place of residence
· Social security number (if located in common law countries such as the US)
· Fiscal form required for the hiring of freelance by the laws of the country you are doing business in (in the US the form would be a W9).
If you are dealing with an individual located outside your country, ask for a copy of the passport to be attached to the agreement. Signing a document that merely states your name and country of residence when your name is a very common one, does not really carry any value. It has less effect than signing a document to which you attached your passport information thereby providing a way for the other signatory party to find you.
If you are planning on exchanging information about your business with a company, here’s what you need to include and attach to the NDA:
· Company name
· Form of incorporation (ex: Gmbh in Germany, Ltd in the UK or in India, Inc. or LLC in the US)
· Company address (where it is incorporated and where it is doing business. Sometimes these differ. The more addresses you have, the better chances you’ll have to notify that company in case of an infringement).
· The name of the representative who will be signing the NDA and the quality he in which he is acting (authorized representative of the company) together with
· A copy of the certificate of incorporation or equivalent
Finally, because some civil law countries such as France and Germany require for each page of an agreement and its attachments to be initialed, if you are hiring contractors that are not located in your common law country, ask for the signatory party to initial each page.
All these precautions may sound like overboard legalese. And in most cases that’s what they’ll turn out to be. But when things do go wrong, they are the only way you may get a chance to act upon an infringement of the agreement.
They also show to the persons you are disclosing the information to that you are serious about the obligations attached to it.