Beware of "Confidentiality Agreements" offered by companies when you want to reveal ideas to them. Many of these agreements actually can help a company steal your idea.
Before you sign any agreement, it is always wise to show it to your attorney. Some company-issued confidentiality agreements are meant to be fair. The majority of them are along the lines of the sample "Company-Generated Confidentiality Agreement" that is shown at the left side of this screen. This agreement is an actual form letter sent out by a company in the electronics business. I have deleted the company's identity and the inventor's name and address, but have not otherwise altered the content of the agreement.
The following items in the company-generated "Confidentiality Agreement" should be of great interest to an entrepreneurial inventor.
Item #1 urges you to protect yourself! Do so by not signing any agreement that even remotely looks like this agreement.
Item #2 asks you to reveal the current status of patent applications. With this information, you reveal (a) if you have applied and (b) if not, that the invention is not covered by any formal protection. Always have your application for inclusion in the "Disclosure Document Program" on file prior to even making the initial call or sending the first letter to the company (the dates "A" and "B" referred to in the first paragraph of the agreement). Item #2 also asks you to send them copies of your drawings and specifications only, if you have filed for a patent. Patents are based upon claims, but, by revealing all of your technical specifications under this agreement, you will virtually give them the entire idea. It is then an easy matter for them to make their own claims based upon your information and to try and "One Better" your claims. It only takes one claim to get a patent. They may apply and get rejected on all of the claims that they can ascertain from your drawings and specifications, but get an improvement patent on an idea of their own that they have added to your idea.
Item #3 asks that if you have NOT applied for a patent, send them EVERYTHING on the idea. They are basically asking you to let them steal the idea, because they are asking you to sign and date the information. With that information, they can predate your documents with any data they want.
Item #4 is common sense, of course. You wouldn't send them the originals and forget to keep a copy for yourself. This clause in the agreement is on your side, yet smacks of "Don't keep anything back from us, only keep in your records exactly what you send us." In other words, send us EVERYTHING!
Item #5 takes away your right to discuss the fact that you are marketing the idea. This restricts (a) your ability to raise capital with that information and (b) your ability to use that information as leverage with other companies (such as parts manufacturers or another interested purchaser). They don't say how long their evaluation will take or if they will send you a letter telling you that the evaluation period is over. This basically ties your hands forever!
Item #6 says nothing about them applying for their own patent and fighting you in court to override your patent. Patents get overridden by other patents all the time. Since they know everything there is to know about your patent application or original idea, it may then be a simple matter to beat your patent.
Item #7 is structured so that, although you can't tell people that you are dealing with the company, the company has no responsibility to you to keep your information confidential. They might market your idea around to find out if there is any interest in it, thus possibly making the idea public-domain material. They might also sell the idea to someone else and then come back to you to buy it for a song. They may just sell the idea and not even come back to you and tell you anything about their actions.
Item #8 again reaffirms their right to do what they want with your idea without compensating you for it. Your rights under the patent laws are based solely on your ability to exclude others from making your item commercially. If your idea is being produced by a company prior to your patent being issued, your only choice is to wait and see if the patent gets issued and sue the company. If the company is making money on the product, be prepared for an expensive court fight.
Item #9 is a real con job! They could easily photocopy your material and send you back the originals, but that would involve some sort of documentation on their part that they sent it to you. Thus, they could be tied up in a legal battle if you decided they had ripped you off. By not sending you anything other than this Confidentiality Agreement, they have no paper trail that connects you to them.
In clause #10, they take away your right to know what they are doing or even to get information from them on their current products that are in the field of the invention. They are asking you to abandon your right to request material from them that is already public material, which they would send to anyone who asked about it. This clause also allows them to say that your invention was similar to a product concept already under development, and this was why they didn't respond any further to your business advances.
Item #11 is the real killer! They tie you up in an agreement that allows them the first access to the idea if they feel that they must buy it from you. By agreeing to negotiate with them for rights to the idea, you place a block in the path of opening negotiations with another company that may be interested in your idea. By agreeing to this, you may have to include this company in any deal you make with another company.
Finally, item #12 basically ties all the information you might send them into this one agreement.
Understanding the Major Points That Have Been Left Out!
Pay careful attention to the major points that have been left out of this example agreement and learn how to spot their absence in future agreements you may encounter.
1. Nowhere does it say what the agreement is about. The idea name is nowhere to be seen. Thus, if you sign this form, you have given them a blanket agreement that they can say is related to anything you may invent, now or in the future.
2. Nowhere in this document is there any sort of time frame under which this agreement operates. They may have tied you up forever, if you sign this agreement. But this may work in your favor because any document without a time frame may be judged invalid in a court of law.
For your own protection, always be careful and wary of anything you sign. At the same time, be certain that your own forms ensure the protection you seek for your ideas. Also, review this chapter carefully and often. The information presented here can be the difference between benefiting to the fullest from your ideas and losing everything to a competitor.
