The simplest answer to the question, “When do I need a Non-Disclosure Agreement (“NDA”)?” is: “Before you disclose any confidential information to a third party”.
NDA’s are typically used when one party intends to disclose proprietary information that may have commercial value and is not yet in the public domain to another party; such as a potential customer, partner, investor, or manufacturer. You should consider using an NDA before disclosing or receiving any sensitive information that might be compromised by public disclosure. In general, such types of information relate to competitive advantages, potential business opportunities and intellectual property for which you may intend to file a patent application.
By using an NDA, you can ensure that:
- your confidential information remains confidential;
- you can still potentially obtain a patent; and
- the confidential information can’t be misused for other purposes.
If you provide confidential information to another party without an NDA in place, the information could be used in ways that you don’t want and you may lose the ability to rely on important forms of intellectual property protection (such as patents and trade secrets). Without an NDA in place, disclosure of your invention to a third party is likely to be deemed public disclosure, which can potentially compromise your ability to obtain patent protection. While Canada and the US provide for the ability to file for patent protection within one year of public disclosure, many countries treat any public disclosure as an absolute bar to patentability.
With a well drafted NDA in place, a breach of the NDA will give you a cause of action and potentially allow you to seek injunctive relief (where the court orders the breaching party to cease disclosure and use) and monetary damages.
A well drafted NDA should include:
- a description of the information that is to be considered confidential;
- under what circumstances the receiving party may use the confidential information; and
- the term of the agreement (ideally for the disclosing party, the term of the NDA will never expire).
If you are the receiving party, it is also important that exceptions to the confidentiality provisions are clearly defined in the NDA. For example, information that the receiving party had prior to the disclosure, information in the public domain, information created by the receiving party, etc…
NDA’s often contain provisions confirming that the NDA does not grant the receiving party an explicit or implied license to the disclosed material and that any and all material disclosed shall be returned to the disclosing party upon request.
You should always ask anyone to whom you are disclosing confidential information to sign an NDA. In practice, it is not always easy to get someone to sign an NDA, particularly if you don’t have a previous business relationship with them. Typically, venture capitalists and other financers are reluctant to sign NDA’s given they come across so many inventions. Whether refusal to sign a non-Disclosure Agreement for Intellectual Property Protection is a deal-breaker will depend on your specific situation.
We have been assisting our clients to grow and to prosper since 1964. If you have any questions regarding confidentiality agreements or NDA’s in regards to intellectual property protection, please do not hesitate to contact the Intellectual Property Lawyers or Business and Corporate Services Department at Devry Smith Frank LLP.