Avoiding Litigation Over Your Confidential Intellectual Property

Guest Article

By Brett Hertzberg, Regina Vogel Culbert and Ben Byer
Merchant & Gould

Disclosure of intellectual property and other confidential information is often necessary when negotiating with potential business partners or when seeking venture capital. But if this information is not properly protected, you could lose funding and end up in costly litigation. In many cases, a properly drafted non-disclosure agreement entered into before discussing confidential information offers some protection. But it is important to be aware of the legal issues, and to tailor your confidentiality agreement and your actions to maximize protection.

Disclosure may vitiate IP rights.
Many of the rights associated with intellectual property (IP) may be lost if confidentiality is not properly maintained. For example, trade secrets only receive legal protection when they are maintained in strict secrecy. International patent rights may be lost when an invention is disclosed to the public before a patent application is filed. While domestic patents currently enjoys a one year grace period between first public disclosure and the filing of a U.S. patent application, proposed legislative changes may eliminate this grace period resulting in a loss of rights immediately after public disclosures are made.

To preserve IP rights, a non-disclosure agreement (NDA) should clearly state that the bound party agrees to protect the confidentiality of information and not disclose it to third parties. In addition, it is important for the parties to define standards by which the recipient must protect the confidential information. For instances where a sophisticated recipient already has strong protection mechanisms for its own confidential information, the parties can agree to apply those measures to the disclosed confidential information. But where the recipient has low standards or no standards at all, the NDA should specify the manner in which confidential information should be protected, and steps should be taken to ensure that each party understands and complies with the confidentiality obligation.

Anticipate Unintentional disclosure and ownership disputes.
To avoid unintentional disclosure, the confidential information covered by the NDA should be clearly identified, and the consequences of unauthorized disclosures made clear. A specific description of what is being disclosed is important evidence should a dispute arise. It is far easier to prove what was disclosed by a written agreement than by testimony of recalled meetings and discussions. In many cases, oral discussion identifying and characterizing confidential information cannot bind the parities without a written agreement.

Define the scope of use.
It is also important to define in clear terms the scope of proper use of the information. A typical provision can specify that the information may only be used for purposes of evaluation. In that manner, litigation involving the scope of permissions granted may be avoided.

Avoid unintentional rights transfer.
In some cases, uncontrolled use of disclosed confidential information may create an implied license, or worse, be interpreted as a transfer of rights. The recipient of the information may then be entitled to royalty-free use of the intellectual property and other confidential information. Many agreements state that the disclosed confidential information remains the property of the discloser, and further emphasizes that the discloser may use the information for any purpose without any obligation to the recipient. It is also prudent to expressly state in the NDA that nothing be construed as granting or implying any transfer of rights.

A properly drafted disclosure agreement can operate to protect important intellectual property, and deter costly litigation over ownership and use.

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Authors Brett A. Hertzberg, Managing Partner, Gina Vogel Culbert, a litigator, and Ben Byer, a patent attorney, are attorneys with the intellectual property firm of Merchant & Gould in its Seattle office.

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