Does Filing For Patent End NDA?

Dear Rich: If company A and company B have both signed a legal nondisclosure agreement (NDA) and then company A applies for a patent on the business plan covered in the NDA, does that make the information public and therefore make the NDA null and void? Information in a patent application becomes public when the USPTO publishes an application 18 months after filing. If the applicant does not plan on filing in foreign countries, the applicant can opt out of the 18-month publication program. If the applicant has opted out, the application will only become public if the application issues (or the applicant changes position on foreign filing). (We've discussed that previously, here.)
What happens after publication. Whenever the information is published, that information can no longer be protected as a trade secret and will not be subject to an NDA. That doesn't necessarily make your NDA "null and void." If other nonpublished information has been included as part of the NDA, that should still be protected. For more on the subject, check out our NDA site.

What's the Meaning of "Relationships" Clause in Contract?

Dear Rich: I was reading the basic NDA on your website and I'm unsure of one clause you included. "5. Relationships. Nothing contained in this Agreement shall be deemed to constitute either party a partner, joint venturer or employee of the other party for any purpose." This is a confusing statement. Would you be able to explain what this means? Any help would be appreciated. Thanks! If you were reviewing an NDA at our NDAsforFree.com site, then the explanation should have been available to you by clicking on the hyperlink for "Relationships." If you were unable to access it, here's an explanation below. (Note that this clause is also sometimes referred to as a "No Joint Venture" clause, too.)

Your relationship with the receiving party is usually defined by the agreement that you are signing -- for example an employment, licensing or investment agreement. To an outsider, it may appear that you have a different relationship, such as a partnership or joint venture. It's possible that an unscrupulous business will try to capitalize on this appearance and make a third-party deal. That is, the receiving party may claim to be your partner to obtain a benefit from a distributor or sublicensee. To avoid liability for such a situation, most agreements include a provision like this one, disclaiming any relationship other than that defined in the agreement. We recommend that you include such a provision and take care to tailor it to the agreement. For example, if you are incorporating the NDA provision in an employment agreement, you would delete the reference to employees. If you are using it in a partnership agreement, take out the reference to partners, and so forth.

Will NDA With Foreign Company Prevent Theft?

(c) Sasha Stim-Fogel

Dear Rich: I have a patent pending here in the states but I want a Chinese company to manufacture my product. Unfortunately, I don't have any intellectual rights overseas. Will a nondisclosure noncompete agreement keep a foreign company from stealing my idea? Neither a nondisclosure (NDA) or  a noncompete will keep anyone from stealing your idea whether in the U.S. or abroad. Agreements don't prevent wrongdoing, they merely establish the rules in the event wrongdoing occurs. An NDA is no different. For example, your NDA may establish the location of the lawsuit, whether the winner gets attorney fees, whether arbitration is mandatory, or the ease with which you can get an injunction.
Back in the U.S.S.A. NDAs enforced in the U.S. usually have a predictable outcome. But once you leave American jurisdiction, the results of enforcement are not as predictable and the costs of enforcement are far more expensive. That increases the odds that your NDA will be breached and that a foreign manufacturer will duplicate molds, copy packaging and send knockoffs out the backdoor and into countries in which you have no intellectual property rights.
Separating the good from the bad. Most foreign manufacturers rely on their credibility and trustworthiness to keep getting new business. So your first goal is to do your homework and try to figure out which ones are reliable and which ones are opportunists. The resources, below, may help you.
Protecting secret stuff only. Keep in mind that a nondisclosure will only protect against the disclosure of confidential information. Once your patent is published, it is no longer confidential. So the only thing your NDA can actually protect is confidential information regarding manufacture, sales and distribution, and know-how needed to produce and distribute the patented item. A noncompete is typically aimed at preventing ex-workers from competing against you and that's not likely to provide much benefit. However, some provisions, in conjunction with your NDA -- for example, an agreement that the manufacturer will not manufacture or distribute your product without your authorization -- can be crafted to deal with your specific situation. A lawyer's assistance may be required. In summary, get an attorney to make sure the agreement provides the best dispute-resolution procedures.
After you've found the best choice. Your lawyer may include provisions that will help you in a foreign deal. Here are some things to consider.

• Jurisdiction. The only way to get a foreignmanufacturer into a U.S. court—unlessthe company does substantialbusiness in the States—is to include aprovision in the NDA that requiresthe manufacturer consent to U.S.jurisdiction. This may prove difficultto negotiate (and to enforce), as foreign manufacturers areoften hesitant about submitting to theU.S. judicial system. 
• Choice of law. Every country has laws as to howcontracts are interpreted. You would want the NDA to be interpreted according to U.S. law.
• Arbitration. Arbitration is similar to litigationbut with less formality and expense.You’ll usually benefit byagreeing to have disputes arbitrated.Hopefully, the manufacturer will agreeto arbitrate the matter in the UnitedStates. If not, there are three popular(though expensive) spots for international arbitration: London (theLondon Court of International Arbitration),Paris (the International Courtof Arbitration of the InternationalChamber of Commerce), and Stockholm(the Arbitration Institute of theStockholm Chamber of Commerce).Also, if possible, your agreementshould award attorneys’ fees to thevictor in the arbitration.

Resources. These resources may help you sort out manufacturers in foreign countries:

•  U.S. Department of Commerce(DOC) and theU.S. Small Business Administration(SBA) are interestedin helping the sales of U.S. goodsoverseas. If an inventor has a trackrecord and the possibility of actuallyplacing a product in the market (oralready has a product and is seekingto market it overseas), the DOC andSBA offer assistance. 
• Check outthe Department of Commerce site atthe International Trade Association(ITA) or the DOC’sexport information. 
• National Trade Data Bank has the mostextensive and detailed statisticalinformation on trade in specificproducts and countries. It is not free,but you can enroll for a free guestsubscription and try it out. 
• The Federation of International TradeAssociations (FITA) has a website with many links,leads, and statistics that can behelpful for international businesses. 

Am I Bound by NDA with Foreign Company?

Dear Rich: I'm in the U.S. and I'm working with a foreign company and we were talking about me possibly helping them with their marketing. I signed an NDA. We both have agreed that I will not do the marketing for them. Now we are talking about me private labeling their product and selling it here in the states. We're in the negotiating stage on price. They are 50% higher than another source for a similar product. I'm happy to give this company 15% to 20% higher payment for their supplement but not 50% higher then their competitor. Because I signed a NDA does this prevent me from going to another vendor? Again, under the NDA it was to discuss marketing consulting. Now we're talking private label/wholesale. So far the negotiating on price is going okay but I want leverage so I'm not handcuffed to buying from him 50% higher them competitive market place. Plus I don't want to sign an exclusive source deal. As far as I know I don't know of any trade secrets that they gave me, just common knowledge that can be found on the web. The Dear Rich Staff is sorry we're not giving you our full attention but we're trying to figure out why our most recent weekly Google Analytics report shows zero visitors since October 1. Oh we see why! Somebody snatched our tracking code. Was it the Chinese bots? Pardon us while we reinsert our code. Ahh ...  that feels better!
Right, you had a question. We're guessing that your primary concern is whether you can ditch the foreign company and go with somebody else without violating the NDA. That shouldn't be a problem, assuming that (1) the document you signed is strictly an NDA, and (2), you don't violate the NDA by giving up any confidential information provided by the foreign company.
Strictly an NDA? Probably you signed a typical NDA that prohibits disclosure of secrets. But be aware that some documents titled Nondisclosure Agreement, Confidentiality Agreement, or even Disclosure Agreement, go beyond just addressing trade secret issues and can include other restrictive provisions --  for example, it may temporarily prohibit solicitations of competitors or contact with customers. So, numero uno, be sure that you didn't sign paperwork that presents additional hurdles. If the agreement is more than an NDA, you may need to consult an attorney.
What can't you do? Assuming it is a straight NDA, keep in mind that their language is often overly restrictive and purposely vague. Those who insist on them sometimes rely on their ambiguity to instill a sense of fear. However, an NDA only prevents disclosure of trade secrets -- confidential information that's unknown by competitors and which is kept confidential via reasonable security efforts. Many such "secrets" don't qualify as trade secrets, and -- if you're confident that they're not protectible -- you are free to disclose them regardless of the NDA. In other words, if all of the information disclosed to you is publicly available, the foreign company will have no basis to sue under the NDA should you go with someone else.

Can NDA be Governed By Two States?

Dear Rich: I’m working on a Non-Disclosure/Trade Secret Agreement for an employee that we have in California. Our main office is in Kansas City, Missouri. Is this wording legally appropriate?

Governing Law and Jurisdictions: This Agreement will be governed and interpreted according to the substantive laws of the State of Missouri and the State of California. Parties hereby expressly consent to the exclusive jurisdiction of the state and federal courts located within Platte County, in the State of Missouri, USA with respect to the interpretation and enforcement of the provisions of this Agreement. 

Can the laws of 2 states govern an agreement? If not o.k., could you please make a verbiage recommendation? We're hesitant to suggest specific verbiage for your contract ... that might cross the imaginary line between providing legal information and providing legal advice. But we can help you avoid ambiguities in your agreement.
Jurisdiction provision. You've combined two provisions (governing law and jurisdiction) which is not uncommon. The jurisdiction provision (also known as "forum selection") requires that any lawsuits arising from the agreement will be filed in Missouri. In normal circumstances, a California citizen may not be obligated to defend a lawsuit in Missouri (but the jurisdiction provision is intended to give consent in advance). Keep in mind that jurisdiction provisions are not uniformly enforced. For example, Idaho and Montana won't enforce them at all while other states require that the parties have some contact with the state beyond the contract provision.
Governing Law. This provision (also known as "choice of law") allows the parties to choose which state's laws will be used to interpret the agreement. If two states are named there will likely be some ambiguity, and ambiguity may be interpreted against the drafter (your company). It's true that this may not be a major issue for your NDA because both Missouri and California have adopted trade secret laws based on the Uniform Trade Secrets Act. Still, there are some substantive issues on which the two states differ and your clause may create unneeded confusion. As a general rule, we believe California law is more likely to favor employee rights than Missouri -- for example, California has strict rules prohibiting noncompetes. Because you are forcing any cases to be filed in Missouri, it would be less ambiguous to use only Missouri law.  Finally, although you are probably aware, NDAs are only enforceable to protect company trade secrets. We've posted some examples of NDAs at this site.

How Do You Create a Trade Secret?

Dear Rich: How are trade secrets made official? Do you have someone sign a NDA? Here's how you create a trade secret: (1) you think something up that will give your business an advantage (2) you keep it to yourself and hide it from others, and (3) if you need to tell someone you make sure that person is bound not to disclose it under the terms of an enforceable agreement (or under a law--for example, most states bar employees from disclosing an employer's trade secrets). There are a few other common sense requirements but that's basically it. The real test of your trade secret program occurs if someone steals your secrets or violates an NDA. For more info, check out this website we created about trade secrets.

Contract Worker Broke My NDA!

Dear Rich: I just found out that a contract sewing employee I had sign an NDA is making my product! What can I do to stop him? An NDA is helpful if you want to stop someone from disclosing or using your secrets. So if the contractor took a confidential process or secret information, you can sue. If, however, your products are publicly available and there is no secret element in their production or marketing, you may have a hard time claiming trade secret theft and violation of the NDA.
What else? If you have a noncompete provision and your state enforces noncompetes, you also may have a solid claim. Is your product protected under copyright or trade dress laws? That may be a way to stop copying. Bottom line dept. Assuming this product is important to your business, you should have a lawyer look at your agreement and your product.

How Do You Protect Trade Secrets?

Dear Rich: How are trade secrets made official? Do you have to have someone sign a NDA? NDAs won’t protect just any business information; the information must qualify as a trade secret. To qualify, the info you're trying to protect must not be generally known or ascertainable through legal methods and must provide you with a competitive advantage or have economic value. In some ways, trade secrets are like tamagotchis -- remember those little creatures from Japan that needed constant digital tending or they would pass on. If you have a trade secret, you must always conceal it, disclosing it only to those bound to maintain confidentiality. An NDA helps to conceal a secret because it is an agreement promising to keep a secret. If broken, the agreement provides remedies against the discloser. Other advantages of using an NDA are:

• It places the party receiving the information on notice that you consider the information confidential. 
• It specifies what information is defined as confidential, which helps prevent misunderstandings and resolve disputes.
• It can establish a method for resolving disputes—for example, mandating that the parties arbitrate any disputes instead of going to court.
• It can guarantee that any dispute will be decided in your geographic area.
• It can establish which state’s laws will govern disputes. For example, if you are entering into an agreement with a company in another state, you may prefer to have disputes resolved under your state’s trade secret laws rather than the laws of the other party’s state.
• In some cases, you may have a longer period of time to file a lawsuit than if you did not have a signed agreement.

There are many decent NDAs available on the web but we prefer the ones posted by the Dear Rich Staff  at this website. 

Software Beta Tester NDA Needed

Dear Rich: What do I do about people who are beta testing my mobile app. Do we need to have them sign NDAs? If you're trying to maintain secrecy about the software and you want to place some limitations on copying and other activities, you should use a beta tester nondisclosure agreement (NDA). We have one posted here. (Click on the links for explanations regarding each provision.) You may find that some of the language is overkill, for example, the security provisions in Section 4. Modify to match your needs.