Most inventors aim to make money from an invention by licensing it to a larger company that will manufacture and sell the invention. (Read more here about the pros and cons of licensing your invention or manufacturing it on your own.) However, they face the risk that potential licensees with whom they discuss the invention may learn enough about it to steal it or prevent them from patenting it. This means that the inventor would not receive any royalties from the invention.
Sometimes an inventor will file a provisional patent application to prevent this problem. They would need to make sure that their invention meets the requirements for patent protection. If it does, a provisional patent application can give their invention patent pending status for a minimal fee. This will signal an inventor’s intent to move forward with obtaining patent rights for the invention. Read more here about provisional patent applications.
Using a Non-Disclosure Agreement
Another option for inventors to consider is requiring potential customers to sign a non-disclosure agreement, also known as a confidentiality agreement. This may be appropriate if the invention may not meet the patent requirements at this stage of its development, which means that they could not file a provisional patent application. To protect their communications with the customer, they would need to put the agreement in place before disclosing any confidential information.
A non-disclosure agreement is similar to other types of contracts. Disclosing information subject to the agreement is essentially a breach of the contract, and the inventor can sue for damages. Often, these cases will proceed in arbitration rather than regular court to protect the confidentiality of the information. The non-disclosure agreement can include an arbitration provision.
To be enforceable, your non-disclosure agreement would need to specifically define the scope of the confidential information and the duties of the customer in not disclosing it. The agreement should explicitly exclude any information that was not created or discovered by you. The duties under the agreement are usually straightforward, requiring the party receiving the confidential information to refrain from disclosing or using it. You should make sure that you understand and accept any duties that the customer asks you to undertake in return. The duration of an agreement varies from about two years to five years in the U.S., although it can be longer in other countries. An inventor may find a shorter duration acceptable if they believe that their invention would be discovered by others within a short time.
Going Without a Non-Disclosure Agreement
Non-disclosure agreements are standard in most industries, so you should think twice before discussing your invention with an entity that refuses to accept a non-disclosure agreement. You will need to consider whether the value of this particular business opportunity is worth the risk of losing your rights. Investigating the reputation of the company in its industry may give you a sense of whether it is likely to handle the information ethically.
If you decide to move forward without a non-disclosure agreement, you will want to discuss your invention in a way that avoids revealing its unique features to the extent possible. Sometimes an initial conversation about the invention will spur a customer’s interest sufficiently to encourage it to sign a non-disclosure agreement. You can also rely on the existence of an implied confidential relationship, based on the actions of both sides. This provides similar protections to those provided by a non-disclosure agreement, but it can be challenging to prove this type of relationship without anything in writing.
A confidential relationship may exist if the inventor asks the customer to keep the information secret, or if the information is classified as a trade secret. (Read more here about trade secrets.) It also may exist if the inventor makes clear that they are expecting payment in exchange for the customer’s use of the invention, or if the customer started the interaction by asking the inventor for information about the invention.