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Important Intellectual Property for Small Business (including Non-Disclosure Agreements)

Adapted from Mondaq – IP 101

Small business should take the same steps as a large multinational to protect their IP, but within their budget.

Make IP decisions and do so early

One of the main (and early) steps is to make a considered decision about what IP means to your business and what IP tools will be used to support your business model.

You may have made a conscious decision to not pursue registered IP rights. On the flip-side, the brand may play an important role in the value of the business eg, TradeMe, Xero and 42 Below.

Types of IP protection

It is vital to know early on what IP protection a business can have, what the benefits will be, and what the costs will be to secure such protection over time. It is important not to bite off more than can be chewed.

Some forms of IP protection are not expensive.

  • IT system firewalls help protect your trade secrets.
  • Using non-disclosure agreements (NDAs) can ensure your know-how is not misused.
  • Copyright is free and can protect your source code or manuals from being copied.

Keeping all, or some, IP secret may be the best form of protection. However, the costs of keeping such secrets, or the cost of losing the secrets to your competitor, can also be high.

It is estimated that trade secret theft cost the US economy $300 billion in 2012.

The key steps are to:

  1. identify what IP rights are going to have maximum effect in increasing the value of the business
  2. budget to protect your IP and implement
  3. do so early.

It can be diffciult to know how important your IP is until possibly a later stage of your business, but still important to protect it. Perhaps your invention is not as original as initially thought and, as a result, the scope of any patent will be so narrow that it will be of no commercial value. But on the flip side, the invention may be very unique and entitled to very broad protection.

NDAs

Non-disclosure agreements, or NDAs, are vital when you’re disclosing new ideas or information to people outside your business. They’re also important to use when you’re receiving confidential information from others, because they clearly outline your obligations and theirs. Without a written agreement, you may find yourself in a tricky ‘we said, they said’ situation with obligations that go way beyond those of the typical NDA.

When businesses take their new initiative to market, they usually have to engage the help of others. Before you disclose anything to an outside party, have them sign a confidentiality agreement or a NDA.

This may not be necessary if your idea is a technology and you’ve already filed a patent application for it. But if you haven’t, a NDA is vital. Patent law in most countries requires the technology to be in what’s called the ‘cone of silence’ at the date of the initial patent application. If those that you’ve disclosed information to have signed NDAs, it’s easier to prove that your idea hadn’t left the cone of silence until after the patent process began. Some companies or investors receiving confidential information may refuse to sign a NDA, but if this pitfall is pointed out to them, they may be more understanding of the situation.

On the flipside, it’s also important to understand why some companies refuse to sign NDAs – to protect them against legal claims of breach of confidentiality in case someone internally happens to be developing the same idea.

Under a typical NDA, the person receiving information (the receiver) agrees not to use or disclose the confidential information of the other person (the discloser), other than for a specific purpose. The definition of ‘confidential information’ in the document is critical. It should clearly state what is and isn’t to be treated as confidential.

There are two viewpoints about what information should be treated as confidential. An approach that works best for the receiver is to generally state the nature of the information to be disclosed. This means the receiver isn’t bound to keep secret, anything ‘off topic’ that the discloser tells them. The best approach for the discloser, however, is to state that everything they tell the receiver must be kept confidential, unless a specific exception applies.

‘Standard’ or template confidentiality agreements can pose problems. Many don’t prevent the receiver from using confidential information for their own benefit. Others include limitations of term, which means that once the term expires, the receiver can do what they want with the confidential information they now have. And most standard agreements don’t capture ownership of any improvements made by the receiver of the information.

Some situations call for more than a NDA to be signed. When things progress between the parties, NDAs should be followed up with different agreements such as a design-commissioning agreement if the recipient of the confidential information is engaged to help develop the technology further. A standard NDA often does not deal with different obligations that arise once the relationship progresses beyond the initial discussions.

Exceptions to NDAs are when the:

  • information is already in the public domain
  • receiver already knows the information
  • receiver can get the information from a third party who’s not under obligations of confidentiality
  • receiver is under a legal obligation to disclose the information.

A major risk in disclosing something new is that the receiver will springboard off your ideas. Make sure your NDA specifies that if the receiver makes any developments based on the original information disclosed, that the business will own any IP rights that come from those developments.

By | 2018-11-19T10:35:48+00:00 November 19th, 2018|Springdale News|Comments Off on Important Intellectual Property for Small Business (including Non-Disclosure Agreements)