Justified Paranoia: Patenting and the Delicate Dance Between Confidentiality and Investment

“One of the ploys used to gain inventors’ confidence is the promise to sign a confidentiality agreement. But those who operate in the shadows of the industry aren’t interested in taking your invention; rather, they plan on taking your money.”

https://depositphotos.com/69010397/stock-illustration-two-men-sharing-ideas.htmlMost inventors understand that a certain amount of paranoia goes a long way when dealing with an idea or invention. Ideas cannot be patented, but every invention starts with an idea. When you have an idea that has been sufficiently formulated and described in a provisional patent application, you may even be able to license that invention idea without yet having received a patent. This all falls apart if you tell others about your invention or otherwise disclose your invention before a patent application is filed.

Worse, if you tell someone your idea without a confidentiality agreement, they are free to use the idea without paying you anything. It can feel like the wild west sometimes for inventors seeking to become entrepreneurs—whether their dreams are to license inventions, to build a company to sell a product, or to offer a service representing the invention.

Keep it Confidential

Once your idea crosses the idea-invention boundary (discussed here), you can receive a patent, provided of course that it is new and nonobvious. But if you start telling others about your invention, they could make and use your invention without paying you—which is bad enough, but the mere act of someone else moving forward with your idea could forever prevent you from obtaining a patent.

First, inventors should assume that countries around the world (i.e., outside the United States) require absolute novelty in order to obtain a patent. This is an exaggeration, but not by much, and is the safest rule to follow. Following this rule, which is an accurate description in many countries, will prevent you from many mistakes that would have negative consequences anywhere. What absolute novelty means is that, prior to filing a patent application, you cannot disclose your invention to anyone without a confidentiality agreement. With patent agents and patent attorneys, the law immediately imposes a confidentiality agreement, so disclosing your invention to a patent practitioner without a written agreement is perfectly fine. With everyone else, you need a confidentiality agreement. Absolute novelty also requires that you not sell, offer for sale, or publicly use or demonstrate the invention prior to filing a patent application.

In the United States, on March 16, 2013, the law changed from “first to invent” to “first inventor to file.” There are exceptions, but extraordinarily narrow exceptions. So narrow are the exceptions to first inventor to file that they are hardly worth mentioning and not at all worth relying upon. So, inventors must consider the law as being black and white—file first before doing anything public, offering anything for sale, or disclosing the invention to anyone. Unlike many foreign jurisdictions, however, if you did make a mistake and made some disclosure, public use or demonstration, or sale, in the United States, there is still a chance you can obtain a patent if the application is filed within 12 months of the earliest such disclosure, public use or offer for sale. So, if you are reading this and realize you made a disclosure before you filed at least a provisional patent application, the safest thing to do would be to immediately consult a patent practitioner.

Of course, the advice about filing first, which everyone should follow, begs the question, “Exactly how much paranoia is too much paranoia?” After all, many inventors are going to need assistance from someone in order to bring their invention into being. And while inventors are very good at the invention part of the idea, they tend to need a great deal more help with the business aspects, simply because their acumen lies on the technical side of the spectrum.


Know Who to Trust

First, inventors need to know who can be trusted with their invention—and the short answer is: not many people. This prompts many to attempt to secure a signed confidentiality agreement prior to disclosing their invention. By all means, do try to obtain a confidentiality agreement whenever possible; we have free sample confidentiality agreements here on IPWatchdog.com that you can use at your discretion. However, don’t be surprised if the other party does not want to sign. This is because, prior to the signing of the confidentiality agreement, no liability exists for the party receiving the information. After the signing of the agreement, liability exists and there is no guarantee that anything of real value will be conveyed in exchange, but liability has still been created.

For example, Sam invents a new and improved fly swatter. The fly swatter is virtually idiot proof, and anyone can use it to kill flies no matter how uncoordinated. Sam wants to talk to Bob about possibly investing or partnering in the endeavor, and before Sam tells Bob anything, he wants a signed confidentiality agreement. Bob has no idea what he is about to learn from Sam—maybe it’s good, maybe it’s bad, maybe he already knows the information. If Bob signs a confidentiality agreement, he is immediately opening himself up to liability because he has promised to keep Sam’s information secret. If Bob already knew about Sam’s improvement to the fly swatter, the confidentiality agreement he signed will almost certainly say he doesn’t have to treat Sam’s disclosure as confidential. For example, in the standard confidentiality agreement available on IPWatchdog.com there is a clause that reads:

“This Agreement imposes no obligation upon Recipient with respect to any Confidential Information (a) that was in Recipient’s possession before receipt from Discloser…”

This is a fairly typical clause for a confidentiality agreement.

But if you were Sam, what would you think if six months later Bob starts selling a fly swatter that looks remarkably like yours?  Sam will undoubtedly think Bob stole the idea and invention from him and litigation could ensue.

The above story is but one very typical example of what can, and frequently does, happen. Inventors often think what they have is so unique that no one else could have ever come up with the invention without stealing it; but that is not as common as inventors think. That is not to say that taking an invention or idea never happens, but there are plenty of creative people who can and do come up with nearly identical inventions. Just hire a professional to do a patent search on your invention and that will become clear.

Having said this, it is important to make a distinction. Many in the inventing community are well aware that there are some unscrupulous copycats that knock-off products and inventions. They troll places like Kickstarter and have standing policies that if anyone raises a certain amount of money, they will immediately start working on the same thing in order to beat the start-up to market. These unscrupulous actors do exist, and inventors need to be wary of them. That is why filing a patent application first is so important. And if your product has a unique visual appearance, filing for design patent protection can be absolutely essential. While weaker than utility patents, design patents can and do provide great protection against copycat knock-offs.

Returning to our example, if Bob is an investor, he has likely been pitched by many inventors, so it stands to reason that, eventually, two inventors will have at least plausibly similar inventions. Thus, getting an investor like Bob to sign a confidentiality agreement can be quite difficult.


Spotting Shady Operators

Sadly, one of the ploys used to gain inventors’ confidence is the promise to sign a confidentiality agreement. But those who operate in the shadows of the industry aren’t interested in taking your invention; rather, they plan on taking your money by selling you high-priced services for an invention that might not be patentable or is only capable of receiving extremely narrow patent coverage. Their play is not to steal your invention, but rather to make you think it is the best thing since sliced bread so you hire them to do a variety of work for a fee. These actors sometimes recommend design patents—which unfortunately have received a bad reputation in the inventor community as a result—and charge outrageous prices for their services. From start to finish, a design patent with all attorneys’ fees and USPTO fees should generally cost $2,500 to $3,000. Some of the shady operators are known to charge $10,000 to $15,000 or even $20,000 for a single design patent. That is outrageous. Run!

Just because getting a confidentiality agreement is difficult doesn’t mean that you shouldn’t try. There are those out there who are used to signing confidentiality agreements, such as manufacturers and engineers who you might need to work with to create engineering drawings or a prototype. Whenever you are showing your invention to someone within your industry or to those who would have the technical knowledge and ability to move forward with your invention without you, a confidentiality agreement is both essential and more likely to be obtained. Just don’t expect investors or potential licensees to be all that interested in signing a confidentiality agreement—at least at first. However, if they like what they hear, it is not unheard of that at some point they might be willing to sign a confidentiality agreement. So, there is a delicate dance involved where one must reveal a little to entice the reluctant signer of the confidentiality agreement.

In Part II of this series, we will discuss the second-best option to a confidentiality agreement for protecting your idea: provisional patent protection.

Image Source: Deposit Photos
Vector ID: 69010397
Copyright: rastudio 



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Join the Discussion

4 comments so far.

  • [Avatar for Derwood B. Harlow]
    Derwood B. Harlow
    February 17, 2019 09:52 am

    such a good write up Mr. Quinn!
    many years ago I designed a heated suit using batteries It was to help keep you warm and could save battery power when only the feet, or hands we needing a little warmth. My wife and I went down to Boston and to make a long story short we finally found this one door in a large office complex that had small letters on it called (Invention Submission Corp.) Told us we didn’t need our non discloser agreement and had us sign his. Before we left he said go to a restrurant and send me the bill. I should of known then this was so backwards. If someone wanted to pay for your dinner they wouldn’t tell you to send them the bill. After 6 months they sent pictures of my invention and lots of pictures of magazines that they said they were going to publish my invention in. Then 1 month later a bill for $6K what looked like the office visit. I never responded to the invoice. Never herd from them again, but have seen my invention on the market now. I still have my records and letters from them. Be carful.

  • [Avatar for Stuart Fox]
    Stuart Fox
    February 17, 2019 06:07 am

    YES – get an NDA > may help and cant hurt but always file a provisional patent application first because proving confidentiality has been breached is not at all easy.

  • [Avatar for Gene Quinn]
    Gene Quinn
    February 16, 2019 05:28 pm

    Oh Luis my friend. I always love reading your comments. I love the “entrepreneurial stage” circa AD 2000. That is tragically hilarious!

    Substantively, the reality that the money guys get 1,000 ideas a year is exactly why those who you most want to sign an NDA are least likely to actually sign an NDA. It is also why a provisional is so critical.

    When I wrote this it was about 3,000+ words. I got wordy, and agreed with Eileen it was really two different articles with a logical break in the middle. Stay tuned! And stay well my friend.

  • [Avatar for Luis Figarell]
    Luis Figarell
    February 16, 2019 10:56 am

    Many many many years ago (and pre-AIA, in what my wife Elizabeth now calls my ‘entreprenurial stage’, circa AD 2000) I co-founded Extremetix in Houston. A print at home solution, at the time I was ‘just an inventor’ (aka, had not come into the ‘Dark Side’ of patent prosecution.

    Among the people we ‘pitched for funding was the person who sold ‘business.com’ to someone for over six figures. In fact, I seem to recall he flew in from Vail in Bezos plane, having promised to sign our NDA.

    To the best of my recollection the conversation went something like;

    ‘Jeff told me not to sign NDA, I have the money, you have the idea, should I leave?’

    Y’all know we told him, while preserving the finer (patentable) details. [See, time in Houston is never wasted, y’all!!!]

    In defense of the money guys, a VC in Waltham once told me,

    ‘Lu, I get pitched, in person, two ventures a day, another two via email, 250 working days a year, that’s 1,000 ideas a year, you thing after 3 years I remember what I came up with and what others pitched?’

    Net-net, can’t wait for part 2 of this, but GET a provisional filed before going around Sand Hill Rd., Winter St. or your local Angel investing sources…

    I have the money, you have the