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How can I protect my invention when engaging with third parties?

As a company or an individual that has developed an innovative product, you need to make sure, at all times, that you protect your rights over the invention. This is particularly important when you need to talk to a third party about scaling up the prototype and using their manufacturing/ industrial expertise to produce and commercialize it.

Before you disclose any information we recommend you put a confidentiality agreement in place with the third party.
A confidentiality agreement requires the counterparty to hold confidential information in strict confidence. It limits the purpose for which the confidential information can be used and it usually includes an obligation to return or destroy confidential information upon the request of the disclosing party. It also might give the disclosing party the remedy of an injunction if the confidentiality agreement is breached. Confidentiality agreements are often referred to as non-disclosure agreements or NDAs since they relate to the sharing (disclosure) of information. They don’t just cover sharing information about prototypes or other innovative products. They are used when any information, which a party considers to be confidential, is shared with another party. That might be prices or information about customers or suppliers. Parties also often use a confidentiality agreement when they open discussions about whether they want to enter into some sort of business collaboration.

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Consider whether the confidentiality agreement should be mutual (also called 2-way).
Generally speaking, a confidentiality agreement will be mutual when both parties are sharing information with each other. In practice, any discussions between 2 parties will involve both of the parties disclosing information about their business! It will be pretty unusual for only one party to be sharing information to the other but if that is genuinely the case then a one-way agreement should be used which only protects the disclosing party. Often using a mutual agreement helps show the counterpart that the clauses apply equally to both parties and that therefore the agreement you are proposing is fair and even-handed.

Consider whether the confidentiality agreement should contain provisions concerning ownership of new IP, including new IP arising out of ideas developed together. Confidentiality agreements often don’t contain these sort of provisions. That is because they are typically used for very early discussions and disclosures where new IP will not be created. In fact, parties might refuse provisions concerning the development of new IP and argue that these sort of provisions need to be agreed upon at a later stage and covered under a separate agreement which deals with the development aspect (and any cost allocation) in more detail. However, if you know that there is a possibility that new ideas might arise from your discussions then it would be a good idea to cover the ownership of the IP in those ideas in your confidentiality agreement. In the case of the prototype, if you think the counterparty might make a suggestion for improving the prototype then you will want to own the new IP in that suggestion so you are free to exploit it.

But, a confidentiality agreement is not fail-safe and once the confidential information has been disclosed it can be too late to do much about it since the information is already in the public domain. You would need to make a legal claim for breach of contract which takes time and costs money.

So, other practical tips are:

  • Do your due diligence on the counterparty – what do you know about them? Are they reputable?  Has there been any adverse press about their abuse of 3rd party confidential information or IP?
  • Make sure your confidentiality agreement includes a very specific description of the purposes for which the confidential information may be used – for example, for the purposes of the parties discussing whether the counterparty has the necessary expertise to scale-up the prototype.
  • Limit the information you share to what is really essential for the discussions/project.
  • Make sure your discussions stay within the scope described in the confidentiality agreement. If they move outside the scope then you will need to agree a new confidentiality agreement or progress to a different agreement.
  • Mark key documents as “confidential”.
  • Keep a record of what you share with the other party and also minutes of your discussions.
  • Anonymise or redact information shared so that the recipient does not have the full picture.
  • Think about how long the confidentiality obligations will last for – how sensitive is the information? When do you anticipate it will be in the public domain?
  • Consider before you meet with the company whether any of the confidential information contains IP which could be filed (such as a design right or a patent).

For the early discussions, you might want to keep discussions very high level. Do not show the prototype and agree at the start of the discussions (and document it) that you are discussing at high level and will not be discussing any specifics of the prototype or how to improve it. In that case, a simple confidentiality agreement would be sufficient without needing to cover IP ownership.  This is more likely to be accepted by the third party manufacturer and would enable you to have some initial discussions to find out whether this a company you would like to partner with.

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