Patents and copyright are not the only means of protecting intellectual property. As we have discussed previously, some well-equipped companies use trade secrets as a means of protecting their IP in perpetuity. However, some companies have opted for an increasingly trendy and ubiquitous legal construct: the non-disclosure agreement (NDA), also known as a confidentiality agreement (CA).
But the reality is that NDAs are overrated when it comes to intellectual property.
For starters, they can be difficult to enforce in the state of California. If you used boilerplate text or didn’t have it drafted by a lawyer with extensive experience with intellectual property law, you may be setting yourself up for an expensive court fight with a bad result.
Secondly, you’re going to want your influencers to do everything they can to promote your product or service. Muzzling them with a broad NDA is counterintuitive, when you can narrowly focus on trade secret protection.
Lastly, many people refuse to sign NDAs altogether. This is fine if this is a determining factor in whether you hire a base level employee or a marketing company. But it’s a problem if you’re dealing with would-be business partners, or people who partners are already and/or know the sensitive information in question.
Whatever you do, don’t use an NDA without having an intellectual property lawyer draft it for you, or determine whether it’s even appropriate in the first place to use a non-disclosure agreement. If you need assistance with an IP-related NDA, the Law Office of Michael O’Brien can help. Contact us by calling (916) 760-8265, or send us a message using our form.
In general, there are a few things to keep in mind when considering using an NDA for IP purposes.
What is it you want to disclose, and what do you need to keep secret?
For trade secret protection you need the material to be (1) revenue generating, and (2) difficult to discover.
A well-written NDA segregates confidential information (stuff you do not want to disclose, but doesn’t meet the two-part test above) with trade secrets (stuff that satisfies the test above). Trade secrets can be protected as long as the requirements are met. Confidential information can only be protected for a limited period of time. However, some material cannot be protected at all.
High-level ideas are not trade secrets after a product launch. Leave those out of an NDA. However, those sorts of ideas are great subject matter for patent applications prior to making your initial disclosure and bringing your product to market.
Determine whether a non-disclosure or non-compete agreement is more appropriate under the circumstances.
Answering this question has more to do with your manufacturers and employees than anything else. Do you want the most knowledgeable people to be kept quiet about high-level details of your device or service? Or do you want knowledgeable people to be prohibited copying what you’re doing?
In the case of the latter, this requires a non-compete agreement, not a non-disclosure agreement. Non-compete agreements have some enforceability issues when it comes to employees, but are generally enforceable against manufacturers. This makes these agreements effective in preventing copyists.
An enforceable non-disclosure agreement needs to be limited in scope, and not impose undue costs to society.
Borrowing principles from antitrust law, non-disclosure (and non-compete) agreements are evaluated against a standard known as “rule of reason.” This means that the anti-competitive costs to society are weighed against the competitive benefits to the agreement’s participants.
To be better understand this, consider California’s rationale for not enforcing non-compete agreements with regard to future employment. Let’s say a low-level customer service representative who works for a retailer is compelled to sign a non-compete agreement upon being hired. If they subsequently let go, they are unable to seek employment within the field in which they have the most experience, hindering their ability to find employment. This imposes costs on their family, as well as the state and/or federal government, if the person’s financial circumstances become so poor that they qualify for various forms of aid. Thus, non-compete agreements fail the rule of reason test, as the benefits to the former employer are significantly outweighed by the costs to society. This is why California courts will not enforce non-compete agreements in most circumstances.
However, non-compete and non-disclosure agreements with manufacturers, for instance, can be enforceable if narrowly tailored. A common term in such agreements is, “Make these custom goods for me, but don’t make them for anyone else.” These sorts of agreements are enforceable, even here in California.
The biggest takeaway is, don’t try to apply an NDA to your sensitive intellectual property information. You need to first determine whether an NDA is even appropriate in the first place, and then be sure to tailor it to only apply it to what’s appropriate. An overly broad NDA is a weak NDA.