Online Inventors Academy: Tips for Inventors - Confidentiality Agreements

F, Jouffroy Premier Secret confié à Vénus

Photographer Christophe Moustier Licnece Set out in Wikimedia Commons

 

Jane Lambert

Most inventors will have been told by their patent attorneys, Business and IP Centre librarians or other advisors to keep their invention secret until they apply for a patent.  The reason for that advice is that a patent can be granted only if the invention is new.  Once the public knows about it, the invention is by definition no longer new.   It is also worth mentioning that a lot of inventions will never be patented for one reason or another.   In some cases that may be because their subject matter is unpatentable.  In other cases, it may be because the invention is not worth the cost of patenting. 

Inventors often need to discuss their inventions with others such as possible collaborators, product design consultants, business angels, manufacturers or potential licensees.  When they do so, they are often advised to obtain the signature of the person to whom they disclose the invention ("the confidante") on a confidentiality or non-disclosure agreement ("NDA"). Such agreements require the confidante to use the information only for a specified purpose and either not to disclose the information at all or to disclose it only to designated personnel.

It is important to note that the obligation not to disclose or use such information arises not from the agreement but from the law of confidence. Mr Justice Megarry explained the principle in Coco v A.N. Clark (Engineers) Limited [1968] F.S.R. 415, 419:

"In my judgment, three elements are normally required if, apart from contract, a case of breach of confidence is to succeed. First, the information itself, in the words of Lord Greene, M.R. in the Saltman case on page 215, must 'have the necessary quality of confidence about it.' Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use of that information to the detriment of the party communicating it. I must briefly examine each of these requirements in turn."

Probably the most frequently found circumstance in which the imparting of information gives rise to an obligation of confidence is when the person confiding the information ("the confider") and the confidante enter a confidentiality agreement.  It is not, however, the only circumstance.   Another instance is where a client seeks advice from a solicitor or patent attorney.   No NDA is required because it is obvious that the client is disclosing, and the solicitor or attorney is holding, such information in confidence.  

In Coco, the judge said that the information must have the necessary quality of confidence about it.  That means that the information must have some value in that its unauthorized use or disclosure must either benefit the confidante or harm the consider. The information must be secret or at least not generally known.   It could be sensitive technical or commercial information or personal information such as the state of a celebrity's marriage.   A third requirement is that the confider must take reasonable steps to prevent the information's disclosure or misuse perhaps by keeping the document containing the information under lock and key or in a restricted file on a computer.

Obligations of confidence are usually enforced by proceedings in the civil courts.  In There's more to the Law of Confidence than NDAs 14 Oct 2019 I wrote:

"If, as sometimes, happens I am instructed to resist an application for an interim injunction where the applicant relies on an NDA I have a field day. First, I ask whether the information was ever confidential in the first place. Sometimes it is something that has been common knowledge in the industry since Adam was a boy. Other times there has been no attempt to keep the information secret. I was once negotiating terms of a licence which negotiations were taking place in serviced offices when I found the other side's supposedly confidential document in the publicly accessible ladies' loo. There is often room to dispute whether the confidentiality agreement was ever intended to apply to the information in question. One way or another, a halfway competent intellectual property specialist can drive a coach and horses through a bog-standard standalone non-disclosure agreement."

It is essential to specify in the NDA the information that is confidential, the occasion on which it is communicated, the documentation or media in which it is held, the persons to whom it can be disclosed, the purpose of the disclosure, the use to which the information can be put, the deadline for the return of the documents, media and any copies and so on.

In the above article, I suggested:

"If you want to rely on the law of confidence, print a form in duplicate on no carbon required paper with boxes for:

• The name and full postal address, job title, email, telephone and other contact details of the confidante and those of his or her employer if they are different.
• Identify the information to be delivered and the way in which it is to be passed (that is to say, private conversation, whether it is is a document and if so what it contains).
• An acknowledgement that the information has been disclosed in confidence.
• A finite period in which the confidante can contend that the information is not confidential at all and a rapid and cost-effective way of resolving such contentions such as expert determination or expedited arbitration.
• The use to which the information may be put.
• A deadline for the return of confidential documents and may have been made.
• Submission to the jurisdiction of the English courts.

Every single confidential conversation and the delivery of every single document should be recorded and logged separately. If any of the conditions is breached, the confider should call the confidante at once. If it is still not put right the confider should consider legal action including possibly an interim injunction."

Interim injunctions are not cheap to obtain because a lot of work has to be done by solicitors, patent attorney or other authorized litigators and counsel or other advocates in a very space of time.  There is always a risk that the application may fail and the applicant will be required to contribute to the respondent's costs in addition to his or her own.  But if the information is essential to the success of an enterprise there may be no other way.  

For most startups and many other small and medium enterprises, the only way in which enforcement litigation can be funded is by obtaining before-the-event insurance.   I have been urging inventors to take out such cover since 2005 (see IP Insurance  3 Sept 2005),   I repeated my message every year until 2020 2020 when the Chartered Institute of Patent Attorneys published its own guidance on IP insurance to its members (see IPO Guidance: Intellectual Property Insurance 25 Feb 2020).  I now refer inventors and all SME to CIPA's Advice on IP insurance which complements comprehensive Guidance on Intellectual Property Insurance from the Intellectual Property Office.

Last September I launched the Online Inventors Academy with a talk on Patents and Alternatives to Patenting.   Although the audience was not large we had a very lively and informed discussion that exceeded the advertised time by a whole hour,  Unfotunately the response to the next event was disappointing.    As Christmas was approaching we decided to relaunch the Online Inventors' Club and the Online Inventors' Academy until the New Year.   I will kick off the new season with a talk on confidentiality on 23 Jan 2025 at 18:00.   Attendees can join by clicking this link.

Anyone wishing to discuss this article or the Online Inventors' Club or Academy generally should call me on 020 7404 5252 during normal UK office hours or send me a message through my contact page, 

Understanding Trade Secrecy and Confidentiality

Jane Lambert

The right to bring an action to restrain, or recover damages for, the unauthorized disclosure or use of a trade secret is probably the most widely held intellectual property right but it is also one of the least understood. This article attempts to shed some light on the issue.

1. What is a trade secret?

As good a definition as any would be technical or commercial information that is secret or not generally known the unauthorized use or disclosure of which would benefit the person who receives it or harm the person who wants to keep it secret. That could include an algorithm, business plan, chemical formula or customer list.

2. How does one acquire a trade secret?

You can create it by data analysis, design, experiment, market research, R & D or other work or you can license it in from a third party. The important thing is that the information has to have some intrinsic technical or commercial value and it is kept secret.

3.  Do I need a confidentiality or non-disclosure agreement?

Not necessarily. The right to sue to restrain, or recover damages for, unauthorized use or disclosure arises from a set of judge made rules that imposes a duty upon a person who receives a trade secret in confidence not to use or disclose the information without the owner's consent or other lawful excuse. Sometimes it is obvious that information has been disclosed in confidence. Other times you have to put the recipient of the information on notice. That is done by getting him or her to sign a confidentiality or non-disclosure agreement.

4.  Give me an example of when a duty of confidence is obvious

When you seek legal advice from a lawyer or a patent agent is one example. Our professional codes of conduct impose an automatic duty of confidence which can be enforced by our regulators as well as the courts. Another example is where you spot on envelope marked "TOP SECRET" or "PRIVATE AND CONFIDENTIAL" on a bus or train. You should contact the owner or authorities and hand it in to them immediately.

5. Where can I find a reliable all purpose confidentiality agreement?

Such an agreement does not really exist because the obligation not to use or disclose varies according to the circumstances. The Intellectual Property Office gives some useful guidance in Non-Disclosure Agreements and it offers examples of a one-way and mutual non-disclosure agreements but these are just examples and cannot be used in every single case.

6.  What do you suggest?

if you ever have to enforce a confidentiality or non-disclosure agreement in court you have to:

• identify the information precisely as well as the date, time, place and circumstances in which it was given;
• prove that it was communicated expressly in confidence or in circumstances giving rise to an obligation of confidence;
• persuade a judge that it has technical or commercial value in that its unauthorized use or disclosure would benefit the person receiving it or harm you;
• satisfy the judge that it has been kept secret at all times; and
• explain the purpose of the disclosure, state who us entitled to see it and for what purpose and when documents containing the information are to be returned.

The best way to do that is to set it out in an acknowledgement and undertaking by the recipient of the information  and I have prepared a form for that purpose (see Confidentiality Agreement 21 Sept 2010 JD Supra). Particulars of the agreement should be entered into a ledger and strictly monitored.

7.  What happens if the recipient breaches his or her promise?

You contact them immediately, remind them courteously of the terms of their undertaking and ask them to comply with their promises immediately.  If they won't do that immediately then you must take legal advce immediately because you may have to apply to a judge of the Chancery Division for an interim injunction to restrain the disclosure. If you are advised to make such an application you must not hesitate. Once information enters the public domain it ceases to be confidential. A delay of a few days - sometimes of a few hours - can be critical.
NB Don't bring an interim injunction application in the IPEC small claims track as the judge has no jurisdiction to give such relief. You can always transfer your case to IPEC or some other court after you have made your your application.

8.   Are there any get-outs to the duty not to use or disclose?

Loads. Let me give you just a few examples.  As I said above, information ceased to be confidential once it reaches the public domain so long as that is not the fault of the recipient of the information. If the trade secret is a formula or mechanism it is quite lawful to buy a product made to the formula or embodying other technical information to find out how it is made or how it works once it has been placed on the market. You may discover the information yourself by independent, parallel research. You can't rely on the obligation of confidence to break the law or do anything that is regarded as improper.

9.   Say Something about the Trade Secrets Directive

The Council and European Parliament adopted Directive (EU) 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (OJ 15.6.2016 L 157/1)  on 8 June 2016 which harmonizes the trade secrets laws of the 28 EU member states. Governments have to implement that directive by the 9 June 2018 which is likely to be before we leave the EU. Although we will cease to be bound by the directive when we leave the EU it will probably be in our interests to transpose it into our law because the directive offers an opportunity to codify our law of trade secrets. I discussed this directive in The Trade Secrets Directive 7 July 2016.

10.   Further Information

If you want to discuss any part of this article call me on 020 7404 5252 during office hours or use my contact form.  Meanwhile, here are some other materials that you may like to read.

Jane Lambert    All You Need to Know About Confidentiality   Leeds Inventors Club 14 June 2006

Jane Lambert    Confidential Information  NIPC Inventors Club, 12 Nov 2005

Intellectual Property Office Guidance Non-Disclosure Agreements 12 March 2015

The Inventors' Handbook

Source   European Patent Office, Inventors' Handbook

Regular readers will have found a new panel to the left entitled "European Patent Office Guidance to Inventors" which contains links to the home page of "The Inventors' Handbook" and several of its chapters.

I don't know how many times I have visited the European Patent Office ("EPO") website during my career but I shouldn't be surprised if it is very much less than the number of hot dinners I have consumed in my lifetime. Yet it is only this morning that I stumbled on this handbook which contains some of the best advice available to inventors.  Had more inventors visited this useful little site there would have been more successful inventors and flourishing firms and far fewer business failures, broken marriages and nervous breakdowns.

The home page of the site summarizes everything the independent inventor needs to know about confidentiality, market research, working with others, business planning, raising funds, patenting and alternative IP protection and dealing with companies. I will take the last of those topics by way of example since unsuccessful negotiations with potential licensees and joint venture partners provides a large part of my work as an IP lawyer.

Probably the most misleading advice that has ever been given to inventors is: "build a better mousetrap, and the world will beat a path to your door".  It is absolute nonsense.  The phrase is attributed to Ralph Waldo Emerson but he was much too bright to have said such a thing.  What he actually said was

"If a man has good corn or wood, or boards, or pigs, to sell, or can make better chairs or knives, crucibles or church organs, than anybody else, you will find a broad hard-beaten road to his house, though it be in the woods."

Moreover, mousetraps were not invented until after Emerson's death.  

Much better advice comes from the EPO:

"If you want a licensing agreement with a company, you must:

• Find the right companies to approach.

• Approach them in the right way.

Finding suitable companies to approach may be harder than you think, because big, well-known companies are often the least likely to want to deal with inventors."

The page adds that  many inventors also make the mistake of approaching companies too soon, very few big companies genuinely welcome ideas and suggestions from outside their industry, smaller companies may be more receptive but there may be disadvantages in dealing with them too. Subsequent pages advise on how to make the first contact and conduct meetings.  Finally, there is some useful guidance on dealing with companies, negotiating licence agreements and reaching agreement.  Finally, in flat contradiction to the mousetrap misquotation, the EPO warns that companies "will never look at your invention and say: ‘This is so good that we must do it, no matter what it costs us!"

Much better for you to listen to this Emmerson:

If you want to discuss this article or anything to do with inventions you can call me on 020 7404 5252 during normal business hours or fill in my contact form.  Have a good weekend folks.  If you are going to a party tonight I hope it's as good as Emmerson's.

Kate Reid: Confidentiality and Licensing

Counsel are probably in the best position to judge whether a solicitor, patent or trade mark agent is any good because we are instructed by members of those professions. Since the 4 July 2004 barristers have been permitted to deal directly with the public. Public access has changed the way we are instructed but it has not changed the work that we do. If a case requires a solicitor we have a professional duty to advise our client to that effect.   As often as not, the first question from the client is "Can you recommend one?"  I usually make a number of suggestions depending on the nature of the work but it it involves litigation or licensing I nearly always include Kate Reid, principal of Pemberton Reid.

According to her web page, Kate qualified as a solicitor in 1995 and worked at both Hammonds and Lupton Fawcett in Leeds before setting up Pemberton Reid.  In addition to her LLB she holds a post-graduate diploma in Intellectual Property Law and Practice.   She has been instructed in some important cases:

"Antec International v AVS (patent infringement), Antec International v SWC (passing off), Scholes Windows v Magnet (design right infringement), Tyco European Metal Framing v Clewer & others (design right infringement ), 1-800 Flowers (objection to a trade mark application), Bentone v EOGB (trade mark invalidity proceedings)."

Her work now includes:

• advising on the existence and extent of intellectual property
• advising on infringements of intellectual property rights
• intellectual property agreements such as licences and assignments and confidentiality agreements
• intellectual property litigation in the High Court and Court of Appeal
• proceedings in the patent office regarding ownership and entitlement to patents
• prooeedings in the trade marks registry regarding opposition and invalidity of trade marks
• WIPO domain name dispute resolution actions 
• due diligence for purchasers and sellers of intellectual property
• distribution, supply and commercial agency agreements
• terms and conditions of trading
• advising on the Commercial Agents Regulations 1993
• litigation in relation to the Commercial Agents Regulations 1993.

Kate was guest speaker to the World Intellectual Property Day meeting of Leeds Inventors Group on 18 April 2012 (see "Kate Reid at the Leeds Inventors Group 18.4.12"  26 April 2012).  The title of her talk was "Confidentiality and Licensing"). On confidentiality she discussed

• why use a confidentiality agreement
• what is confidential information
• when is information not confidential
• how long will information be confidential, and
• what can it be used for.

On licensing she talked about the nature of a licence and the rights that can be granted, royalties and the usual terms with a few special words about trade marks.   

Immediately after her talk we had a presentation from FabLab Airedale which is now open for business (see

"FabLab Airedale: Introductory Offer and Visit" 2 May 2012 IP Yorkshire). The next meeting of the Leeds Inventors Group will be a visit to FabLab Airedale in Keighley on 16 May 2012 between 18:00 and 20:00 (see "16th May Leeds Inventors Group -visit to Fablab Airedale" 2 May 2012 Leeds Inventors Group blog).   Inventors from Sheffield are also invited and I am sure that those from elsewhere would be very welcome.   If you want to come please call Ged or Stef on  0113 247 8266.

Finally, a plug for Sheffield Inventors.   If you want investment to develop your invention come to Sheffield Central Library, Surrey Street, S1 1XZ at 18:00 sharp on 14 May 2012 to hear Mr. Russell Copley of Angels Den speak on  "Raising Business Growth Investment - Alternatives to Bank Finance". Angels Den is one of the largest angels networks in the UK.

Further Reading

Jane Lambert "All you need to know about confidentiality" 14 June 2006

Jane Lambert "Enforce a Confidentiality Agreement for as Little as £475" 21 Aug 2010

Jane Lambert Sample Confidentiality Agreement 21 Sep 2010

Enforce a Confidentiality Agreement for as Little as £475

Most inventors learn from the Intellectual Property Office (“IPO”), librarians, Business Link advisors, patent attorneys and each other that they should disclose their inventions only in confidence. They know that they should ask business partners, investors and others to sign instruments like the IPO’s “Confidential Disclosure Agreement”.

But what happens if a person who has signed one of those agreements breaks his or her promises by making the invention or disclosing it to a third party? Theoretically the inventor can claim an injunction, damages or other relief for breach of confidence. If he or she acts quickly enough, the inventor can apply to the court for an injunction to restrain the breach until trial. But an application of that kind can cost thousands of pounds. There are not very many individuals or indeed businesses with that kind of money.

Before the Access to Justice Act 1999 legal aid was available for that kind of action. Unfortunately para.1 (h) of Sched. 2 of that Act now excludes business disputes from legal aid. Many unscrupulous opportunists are aware that civil litigation is not an option for their victims if they disregard their obligations.

However, civil litigation is not the only means of enforcement. Parties to an agreement can agree to refer any dispute or difference arising from their agreement to a tribunal of their choice known as an “arbitrator” who will determine the dispute in accordance with the law and evidence in much the same way as a judge would though in private and at a time and place of the parties’ choosing. That is a process known as “arbitration”. It is one of several alternatives to the courts that are bundled together under the label “alternative dispute resolution” or ADR.

There are many types of dispute for which arbitration is more appropriate than litigation. If a case turns on a technical issue as happens frequently in civil engineering, the issue is more likely to be understood by an arbitrator who has spent his lifetime in that profession than by a judge who has spent his in the criminal or divorce courts. If the parties are from different countries and neither is comfortable with the legal system of the other they can refer their dispute to a neutral that they both trust. Yet another type of case appropriate for arbitration are disputes between trade mark owners and proprietors of domain names that are the same or similar to the mark as to who should own the domain name. The parties to such disputes need a process that is fast and fair but also inexpensive. Procedures like the Uniform Domain Name Dispute Resolution Policy (“UDRP”) deliver a binding decision within a few weeks of the complaint for as little as US$1,500.

There is no reason why a process like the UDRP should not be used to resolve other types of intellectual property dispute such as those that subsist between inventors and their collaborators, investors, licensees and other third parties. NIPC Ltd has established such a process called NIPC Arbitration. This is “a low cost dispute resolution service for intellectual property, technology, media and entertainment cases” inspired by the UDRP and similar schemes. NIPC Arbitration can deliver an order to refrain from breaching a promise not to use or disclose confidential information within a few days of the reference for as little as £475 (£250 to the arbitrator for a telephone hearing lasting less than an hour plus £100 to the company for registration, another £25 for appointing the arbitrator and £100 for arranging the hearing). Rule 5 of the scheme’s Arbitration Rules confers on the arbitrator all the powers of the court including the power to grant interim injunctions. The risk to the inventor is limited by rule 11 (4) which limits costs to those that would be awarded by a hearing officer in an Intellectual Property Office tribunal which very rarely exceed £3,000 and are usually much lower. An award by an arbitrator is as good as a judgment for most purposes and can be backed up if necessary by the courts.

NIPC Arbitration is by no means the only arbitration scheme but it is the only one that is tailored to IP disputes involving individual inventors, start-ups and other small businesses. Key to the scheme is an arbitration clause which refers disputes to an NIPC arbitrator under the NIPC Arbitration Rules. Examples of such clauses are to be found on the Arbitration Agreement Page of the NIPC website.

For more information fill in the on-line contact form or visit www.nipcarb.co.uk .