The second most frequent question I get from people (after “How much does it cost to get a patent?”) is, “I am going to talk to So-and-so; what should I do beforehand?” In response, I have come up with five easy rules to follow. The purpose of this article is to review these rules in detail so that when you're asked to show your invention or discuss your idea, you take the appropriate steps to protect yourself and your creation.
Rule #1 – Make Sure Your Invention is Described in Detail in a Lab Book, and the Lab Book is Signed and Dated.
Rule #1 forces an inventor to sit down and think through what comprises his or her invention. Many times an inventor only has an idea—not an invention. The difference between the two is significant. An idea is just that. It is theoretical in nature and needs to be proven or built to morph into something more. Some people describe an idea as a “formulated thought.” An invention is an extension of an idea that is further developed, resulting in a prototype or an actual proven solution to the problem. The invention may be a new type of device, method, composition of matter or process. The key difference is that an idea is not patentable, while an invention is.
To comply with Rule #1, the inventor should contemporaneously document his idea and the development path of the idea to the invention, by some means. Contemporaneous means simultaneous to the process. This documentation step may encompass the use of a “traditional” lab book or alternatively, a computerized record. Either way, it is critical for the inventor to fully describe in sufficient detail the invention she plans on discussing with the third party before any discussions occur.
Rule #2 – Figure Out What You Want Out of the Discussions Before You Speak to the Third Party.
Rule #2 requires the inventor to transition into the role of strategic business owner. When I speak with inventors, I always ask, “What do you want to do with your invention?” When a third party asks to talk to you, it's time to prioritize what arrangement you want out of these discussions. So, what are your options at this point? That depends upon how much control that you, the inventor, want to retain over your invention. A first option may be for financial investment only by the third party, with certain downstream rights which would allow you to continue development of the invention. Depending upon the terms of any agreement, the inventor may retain full control over the invention.
A second option is entering into a licensing arrangement with the third party, where a license (exclusive or non-exclusive) is granted which allows the third party to make, use or sell the invention to others exclusively with no restrictions, or with restrictions in the field of use or geographically. As for control over the continued development of the invention, typically for licensing arrangements, this remains with the inventor.
A third option is outright sale of the invention to the third party. This occurs via execution of an assignment agreement, where in exchange for the sale of the invention (and all related IP), the inventor receives a lump sum payment, ongoing royalty stream, or a combination of the two. The key point of an assignment agreement is that the inventor no longer controls what happens with her invention.
To adhere to Rule #2, the inventor needs to decide how much control she is willing to give up and at what level of compensation. Once she has made that determination, she is in a better position to negotiate a win/win arrangement with the third party.
Rule #3 – Never Discuss Your Idea or Invention with a Third Party Without a Signed NDA.
Rule #3 puts into place a contractual arrangement between the inventor and the third party, where in exchange for disclosing confidential information, the third party agrees to keep such information a secret. Further, the existence of such an agreement also preserves certain IP filing rights for the inventor in the event that he has not yet filed for provisional patent protection.
The inventor needs to understand that not all Non-Disclosure Agreements (NDAs) are the same. Many inventors just use an NDA that is downloaded from the Internet. In this case, the NDA may fail to provide appropriate protection for the given situation. Therefore, the inventor needs to read the NDA carefully and, if possible, have an attorney review it, as well. If the third party is a company of any size or a venture capitalist, then rest assured, they have had an attorney review the agreement.
At a minimum, the NDA should include eight basic elements.
1. Clearly define “Confidential Information.” Make sure that it covers trade secrets, or else the agreement is worthless.
2. Clearly define any exclusions from the confidential information (e.g., information learned prior to entering into the NDA).
3. List the obligations and duties of the party receiving the confidential information.
4. Include time periods for which the NDA will be valid and enforceable.
5. Include miscellaneous provisions (e.g., which law applies, venue selection, mandatory arbitration, ability to assign, etc.).
6. Ensure that entering into the NDA does not require a future business relationship.
7. Include a detailed description of what is being disclosed (e.g., in an exhibit attached to the NDA).
8. Clearly define whether the agreement is mutual or unilateral.
If the inventor is “forced” to use a third party’s NDA, be careful that the definition of “Confidential Information” includes trade secrets, and that to qualify as “Confidential Information,” specific steps have to be taken—for example, everything is marked “Confidential Information,” or any oral disclosures are not confidential. Also, be careful of language that says, “This Agreement does not create a confidential relationship,” “No confidential relationship is implied or established by the exchange of confidential information,” “The exchange of any information under this Agreement is not made in confidence” or “Neither this Agreement nor the exchange of information creates any obligations of secrecy or confidentiality.”
Most third parties will want to comply with Rule #3; however, do not be surprised if established companies will require the inventor to sign “their” NDA. Further, venture capitalists (and also angel investors) will rarely agree to sign NDAs. The inventor will need to assess each of these situations and determine the best way forward to mitigate the risks of not having an NDA in place.
Rule #4 – Watch What You Say!
Compliance with this rule is pretty simple; however, human nature usually takes over when an inventor gets into a room with others. The inventor wants to impress the people that he is meeting with and will start to talk about the invention, but these discussions always seem to move in a direction of possible changes and improvements to the device or process. This could lead to problems later. For instance, the subject matter of the changes or improvements is likely not covered by the terms of the NDA. Thus, in theory, the third party does not have to treat this as confidential information and could possibly use this information for other projects or could file for patent protection.
Additionally, if the changes or improvements are suggested by the third party, the inventor likely does not “own” these and could have difficulty in the future, if she were to incorporate these into the design of her invention.
In order to comply with Rule #4, inventors should create an agenda before the meeting and include a brief description of the invention to be discussed. These documents can be passed out at the start of the meeting and collected at the end, and should all be marked “Confidential” at the top. Having an agenda and description acts as a roadmap for the inventor and will assist with keeping the meeting on point. Collecting the materials post-meeting ensures that such confidential materials are not in general distribution and left with the third party.
Rule #5 – File a Provisional Patent Application Before the Meeting.
If at all possible, the inventor should file a provisional patent application that covers his invention before entering the meeting. This application should include figures/drawings that accurately depict the current state of the invention and also a written description of these figures. The written description should also include any possible design iterations, improvements, design-arounds, etc. for completeness. One needs to remember that this is a provisional application only, and will not be reviewed by the Patent Office. Filing a provisional patent application that does not adequately describe the invention may be more of a detriment than an asset, so care must be taken to be as complete as possible to ensure that the priority filing date is of value to the inventor when he proceeds to convert the application on the one-year anniversary.
As the provisional application is not available to the public post-filing, the inventor should attempt to keep the document confidential during the third party meeting. Having a filed provisional patent application will not prevent others from filing design around or improved versions of the invention later, so I recommend that the inventor not provide copies of the application to the third party and only discuss the contents of the application in general terms.
Compliance with Rule #4 above is also very important even when a provisional patent application has been filed. The inventor should not stray from discussions of the invention as described in the application, and must take care so as to not inadvertently incorporate others’ suggestions or improvements into a second provisional filing or the converted non-provisional application filing and thus, be required to add these people as inventors.
In conclusion, adhering to these five rules before taking a meeting with a third party will go a long way toward ensuring that an inventor’s invention will remain a valuable asset to him or her, and that the secrets surrounding the invention are kept safe.
Remember that this article was written for informational purposes only and should not be interpreted as legal advice. Please consult with a licensed attorney if you have any questions.
John W. Boger is a partner with the boutique Intellectual Property Law Firm of Heslin Rothenberg Farley & Mesiti P.C. and is the Chairman of the firm’s Medical Products and Technology Practice Group. Before attending law school, Mr. Boger worked for eight years with a large orthopedic device manufacturer in various product development and marketing positions.
Heslin Rothenberg Farley & Mesiti P.C.