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First published on . Last updated on January 13, 2024.

I. Introduction.

Likely, you often frequently agree to highly complex intellectual property-related agreements without reading them, such as when you sign up for consumer websites such as Facebook or Twitter, because you feel that if the rest of the public else is signing them, the terms cannot be too awful. You may be correct.

In contrast, when you sign agreements as a business, employee or independent contractor that the general public does not sign, you are at MUCH MORE risk. Read and understand what you are signing or drafting, or else you may lose everything.

A. When do Non-Disclosure Agreements (NDAs) happen?

1. Business-to-Business NDAs

1. Submitting an invention disclosure to a potential licensee (e.g. a party who will pay royalties) to evaluate the invention to decide whether to license i

i. Either party might request an NDA.

ii. Sometimes called non-disclosure form or confidential disclosure form.

1. b. Providing information to a supplier such as a manufacturer or model-maker so that they know how to make the invention.

1. c. Receiving information from another owner of intellectual property d.   When receiving consulting services
2. 2. Employment Agreements and NDAs in an Employment Situation

1. a. Many employers require new employees to sign a non-disclosure agreement or employment agreement with IP-related terms.

1. b. Non-disclosure terms may be included as part of the overall work contract or as an attachment.

1. c. Even where no form is signed, employer and employee have certain rights and obligations.

1. d. Even where a form is signed, some provisions may be voidable under the law. For example, California has laws that protect the rights of inventors who are employees (CA Labor Code 2870-72).

3. 3. While being employed

1. a. An employee may come up with an invention. Areas of potential dispute can be regarding who has what rights to the invention. Regardless of who receives the rights, any employee who was an inventor must be listed on the patent for that invention. Another area of potential dispute is where the employer has rights to an invention but fails to develop it.

1. b. When the employee wishes to disclose information that the employer considers to be confidential. For example, the employee wishes to give a technical presentation to a professional society or list a project on their resume.

4. 4. Upon employment termination

1. a. Sometimes employers ask employees to sign contracts upon termination of the employment. This may be especially relevant where the scope of employment had changed from when the original agreement was signed, or where the employee was downsized and received a compensation package. Employees generally do not have to sign these agreements, but risk losing some benefits. Often the employee is asked to sign these agreements with very little notice under stressful, humiliating conditions. If in this situation, stay calm, hold your head up high, and read the agreement (despite verbal threats or reassurances). Perhaps you can’t do anything about it, but at least you can make a more intelligent decision.

1. b. One issue is whether an employee may leave to work for a competitor. If the employee’s job skills are very specialized, a competitor may be the only alternative source of employment.

1. c. Another area of potential conflict is what information and documents an employee may keep or discuss after termination of employment.

5. 5. As a freelancer or a contractor working on a project. Most of the above employment-related issues are applicable to independent contractors.

1. Warning: even if you are in the position of a licensor instead of a licensee, some NDAs will require assignment of future intellectual property under unfavorable terms.

1. Parts of the Non-Disclosure Agreement

Upon employment, an employee or contractor may sign an agreement not to disclose confidential information or may agree to be bound by an employee manual or other document containing such terms or policies. These can be called Employment Agreement, Contractor Agreement, Non-Disclosure Agreement (NDA) or other similar names. Their titles sound harmless and purport to be an agreement not to disclose employer’s confidential information.

WARNING: they can contain many other terms that can greatly affect one’s future and intellectual property rights.  Do NOT sign these agreements unless you can live with ALL of the conditions.

1. General and Non-disclosure clauses (not an exhaustive list)

1. 1. Identification of parties (names and addresses of parties). Make sure the agreement is with the proper company (in the proper country), and that the signer has authority to commit the company, e.g. at least a vice presiden

2. 2. Your invention and information (conception, patent application, proprietary data)

3. 3. Their information (inventions, business methods, marketing leads, customer information)

4. 4. What constitutes proprietary information?

1. a. Unpatented or patent-applied for inventions. Note that patented inventions are public knowledge, so any information contained in the patent is not confidential.
2. b. Formulas and recipes
3. c. Business methods and procedures
4. d. Business, technical or customer databases or data
5. e. In some cases, the existence of negotiations between parties f. Business plans

5. 5. Clauses that provide for loopholes and exceptions, in which case information covered by the agreement may be disclosed.

1. a. When the knowledge is already in the public domai
2. b. When one of the parties is required to disclose the information by a court of law.

1. RED ALERT! Assignment of Intellectual Property

In case you missed it the first time, NDAs can also contain an assignment of intellectual property, even if they should not. Often these clauses are quite enforceable, so if you sign an overly broad NDA, you may be stuck with its terms. If you accept the terms, make sure you are compensated appropriately.

1. 1. As an independent inventor

1. a. May have to give the company first option on future inventions (usually for compensation).

1. b. An NDA probably should not be used as a substitute for a licensing agreement. If so, it should be examined by an experienced licensing attorney prior to being si

1. c. Rights to use your name in publicity

2. 2. As an employee

1. a. May have to agree to assign inventions and other intellectual property to employer
2. b. In California, state statutes exist to provide limited protection to employee inventors (e.g. who are not hired to invent). See CA Labor Sec 2870,

2872.

1. c. Several court cases also impact enforceability of such provisions; case law varies by state.
2. d. Even where do not have to assign intellectual property, inventor may have to give up a “shop right” (use rights) to employer if inventor used their resources

3. 3. As a contractor

1. a. Many of the same provisions that apply to inventors apply to contractors, but court interpretations can vary.

4. 4. As a student

Students often do not sign NDAs, but they may still be bound by NDA-like provisions, especially where external funding has been provided. Violation of intellectual property rules by students has resulted in imprisonment in at least one state (Florida), but typically results in academic or employment-related sanctions, and an order to assign intellectual property.

1. If the NDA is purely to evaluate an invention for potential licensing:

1. 1. Similar to the format of a licensing agreement, in that an NDA is a contract.

2. 2. However, typically intellectual property is neither assigned nor are royalties and compensation mentioned. There are excepti

3. 3. Read the agreement before signing it. If you don’t understand the terms don’t sign it or run it by your own attorney for advice.

1. Agreement Not to Compete, Restrictions on Future Work and

Employment

1. 1. Also called a “Non-Compete Agreement” or “Non-Compete Covenant”

2. 2. May control:
3. i. What specific companies you can’t work for ii. What industries you can’t work in

iii. What geographic territory you can’t work for iv. What job titles you can’t hold

1. v. How long the above limitations will last
2. vi. What clients you can’t work for, even as an employee of a third party

3. 3. Sometimes are not completely enforceable, especially if too broad in terms of length of time, geographic area or scope of companies. Although California courts often do not enforce non-compete agreements, they look dimly upon former employees who bring their past employer’s property, customers or information to their new employer.

III. Strategies

1. Do you have to sign?

It is generally easier to negotiate and change the terms of a business-to- business NDA than an employment type of NDA. The instructor has often successfully renegotiated Employment-Related NDAs and Intellectual

Property assignment clauses, but negotiations involved getting yelled at, having to go several layers up the organization and other grief. You have to risk losing the job or contract; if you really need the job perhaps you will have to take whatever terms they originally give you. It is better to order your life, career and finances so that you have the bargaining power to take the risks involved in negotiating terms.

1. Negotiating

When you do negotiate, always read the terms of the rewritten agreement BEFORE signing it. Some parties will try to slip in language (even as simple as the word “or”) that dramatically changes the slant of the agreement in their favor regardless of what promises they made during negotiations.

(Sometimes this is the lawyer’s fault.)

When negotiating, be firm, but do not lose your cool. Let the other side do the yelling. Figure out in advance what terms you can be flexible on and which ones are deal-killers. Try to sound courteous and be reasonable, and the other side will often respect your professionalism. Even if the current deal fails, future deals may be possible. Strive to maintain the relationship. In the long run, relationships are more important than individual deals.

It is perfectly acceptable in business-to-business situations to use an attorney to help draft and the NDA and be involved in negotiations. This is true even when submitting an invention for potential licensing to a large corporation with its own standard forms.

1. 1. Carefully read NDAs before signing them. Read every paragraph and every word. The contents of these agreements can be surprising.

2. 2. Can sometimes negotiate terms of NDA. Don’t sign these unless you can live with the limitations Likewise, work hard to manage your life, career and finances to that you will have freedom and bargaining power to negotiate.

1. a. Be aware of both the needs of yourself and the other party.

1. b. Be aware that large firms cannot easily change the wording of a standard agreement, but they might have several different approved agreements they can use, some with better terms than others.

1. c. Be prepared to be yelled at and for other unpleasantness, but keep your cool, stay professional and be a good listener.

1. d. Try to avoid verbal modifications of agreement, since these might not be enforceable, although they might be slightly better than nothing if you can’t get anything else. Keep a dated record of your conversation and verbal statements by the employer.

1. e. For corporations, you will ultimately need approval of a manager who is at least a Vice President.

1. f. Be reasonable. However, if even reasonable terms are not in your best interests, you should reconsider entering into the business arrangement.

1. g. Again, be professional.  Every possible contingency can never be written into an agreement. There is always some level of trust. Make sure you show that you can be trusted by highly professional conduct. Expect the same from the other party.

3. 3. Sometimes, you may have to sign an undesirable NDA as to get needed business, but always be prepared for potential problems, or to lose at least some of your intellectual property. If you know this up front, you can be better prepared for the consequences, or to later turn things to your advantage.

1. C. Avoid Mingling

1. 1. Avoid using employer or school resources on personal inventions.

2. 2. Carefully read NDAs before signing

3. 3. When in business, avoid using resources of business partners for personal inventions

4. 4. As an employee, keep personal time and activities separate from paid time.

Remember, your internet usage at work may be permanently recorded by your employer and used as evidence of use of employer resources. Likewise, avoid using employer email accounts for personal business, even if using those accounts offsite.

5. 5. Business, employer or school resources can include use of telephones, computers or computer accounts, office space, office supplies, equipment, laboratory or workshop facilities, or staff assistance. For public universities, accessing the library or any other resource available to the general public (non- students and non-employees) might not count as a school resour

1. D. Getting Other Parties To Sign an NDA

1. 1. Sometimes you will want other parties to sign an NDA agreeing to keep your intellectual property and other information confidentia

2. 2. There are standard forms that may meet your basic needs. The services of an attorney experienced with NDAs is recommended for anything critical.

3. 3. Some parties may refuse to sign an NDA. This does not necessarily mean that party is or is not trustworthy. Many venture capitalists and angels see so many proposals covering so many areas that they can’t afford to be tied up by NDAs. If you can’t get an NDA signed, make sure you have your intellectual property as protected necessary (such as by patent applications). In some cases, you may decide to take the risk of not having protection, but be aware of your decision.

4. 4. If you narrowly tailor an NDA, another party might be more willing to sign it.