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Confidentiality Agreements
the importance of reasonable scope.
There are many reasons to enter into a confidentiality agreement (also known as a "CA", "CDA", "nondisclosure agreement", or "NDA") with a third party in relation to your intellectual property. Commonly, the agreement is to protect the novelty of any later-filed application to protect your intellectual property. Using the disclosure of a patentable invention as an example, without a valid confidentiality agreement in place any discussion, demonstration, or handing over of documents relating to an invention is likely to seriously compromise the validity of any patent granted to that invention. Another situation requiring a confidentiality agreement is where there is no desire to formally pursue protection, and the intellectual property is to be maintained as a "trade secret".
Whatever the motivation, common considerations arise for both the "disclosing party" and "recipient party"when entering into a confidentiality agreement, albeit from alternative points of view. An often disputed area between the parties is the scope of the definition of the confidential information, as recited in the agreement. It will be apparent that there is a natural tension between the two parties: the recipient of the information does not wish to be unfairly prohibited from exploiting information that has not been comprehensively provided by the discloser, while the discloser is fearful of the recipient making minor modifications to the confidential information and stealing the innovation.
Take as an example a situation where an innovator company (the discloser) has developed a method for the improved cleaning of water pipes. The discloser agrees to disclose confidential information to a water supply utility (the recipient) on the understanding that the recipient signs a confidentiality agreement at the conclusion of the discussion. The meeting goes well, and the recipient is presented with a confidentiality agreement reciting the confidential information as simply "methods for cleaning water pipes". The recipient refuses to sign, leading to a tense stand off after an otherwise positive meeting.
As a company dealing in the water supply business, the recipient correctly argues that they should not be restrained from investigating any method for cleaning pipes for the term of the agreement. After an awkward break in the meeting, the discloser agrees to limit the confidential information to methods for cleaning water pipes using an acidic solution at a velocity of over 3.0 meters per second". The recipient company considers the amendment but still refuses to sign because such methods have been used for many years on sewerage pipes, and it is intuitive to apply the same idea to water pipes.
In an attempt to break the deadlock, the recipient suggests that the agreement recites "methods for cleaning water pipes using a solution of acetic acid at a velocity of 3.0 to 3.2 meters per second", reasoning that the discloser has only demonstrated utility at those velocities, and with that particular acid.
By this stage, the mood in the room has deterioriated somewhat and the discloser is ready to terminate the discussions (dangerously, without a signed agreement). He angrily suggests that on those terms, the recipient would be free to exploit methods using any acid other than acetic, and any velocities of over 3.2 meters per second. The dislcoser asserts that the recipient is trying to steal his invention, and trust between the parties plummets.
After much anguished discussion, the parties agree that the discloser's "true" technical contribution is the use of organic acids at velocities of greater than 3.0 meters per second. It is agreed that the discloser appears to be the first to show that organic acids (of which acetic acid is a prototypical example) are more efficaceous than inorganic acids (which are normally used, but tend to corrode pipes) at the minimum stated velocity and also any higher velocity physically achievable within a water pipe. The confidentiality agreements is signed, but the relationship has been clearly damaged by the process.
Scenarios such as that outlined above are not unusual, and are a major reason for innovators failing to get past first base with potential investors and collaborators. It is therefore key for both parties to start from at least reasonable standpoints regarding the scope of any confidentiality agreement.
Even where there is no argument between the disclosing and recipient parties as to the correct scope, it is nevertheless important to consider whether the agreement is too narrow (for the discloser) or too broad (for the recipient).
An experienced patent attorney is expert at advising on a reasonable breadth of the subject matter of a confidentilaity agreement, and is also skilled at the use of terminology to properly described that scope. Churchill attorneys will be happy to provide further advice, and also to prepare a confidentiality agreement tailored to your specific circumstances.
