Should I disclose my idea without an non-disclosure agreement (NDA)? What if the third party is reluctant to sign an NDA? Should I first secure a patent filing (provisional patent application or non-provisional patent application)?

You have this great idea and you need to share it with manufactures, developers, and distributors (third party) to see if you can make it work.  But you’re worried, and rightfully so, if companies with more resources can just pick up your idea and run away with it!

The first thing you should answer is if the third party has any potential conflict of interest with you.  Are they in your market?  Do they serve a customer base within your market?

If so, they may be reluctant to sign an NDA with you because they do not want to risk any chance of foreclosing themselves from entering the market with products that are similar to yours.  They can allege that they have already been working on your designs long before you approached them, but it would create a legal headache for them.  Remember, an NDA not only means that they have to keep the information confidential – it can also be construed to mean that the party receiving the disclosure cannot ‘use’ the information… which, in turn, means that if they don’t come to a deal with you, then they will be in a legal-bind to regain an important market-segment that they ‘signed away’ in the NDA.

For this reason, it may not be always ‘worth-it’ for the third party to potentially foreclose themselves from entering a market for the sake of hearing your “idea” – albeit, a great idea.

Since you are in a position with a lot less leverage here, you need to bring something tangible to the table.  Intellectual Property Rights are considered far more tangible than an idea.  You should absolutely secure your IP before moving forward with them in any way, especially a path without an NDA.

Here is what I would do first, #4 and #5 is important:

  1. Secure a Provisional Patent filing (it’s inexpensive and a crucial first step in our First-to-File system);
  2. Decide what you are comfortable to disclose to the third party – Pick only ‘big points’ and not ‘functional’ points;
  3. Don’t show them the whole picture, only a part of the picture;
  4. Record the contents of disclosure in writing and, tell them in advance that they must acknowledge, in writing, to receiving the disclosure, even if it’s not under NDA – the recipient should be a manager/executive/officer of the company;
  5. Put them on notice, in writing, that the at least portions of the contents of the disclosure is Patent Pending;
  6. Provide the disclosure, but try not to give them any disclosure that is easily distributable (e.g., electronic form); and
  7. Then, tell them if they are interested to hear any more details, or to see the provisional/non-provisional application, they will need to sign an NDA.

Now, the next steps are difficult, but also important:

  1. After disclosure, and until you file a non-provisional patent application, you will need to regularly monitor their patent filings to make sure they don’t on to file a non-provisional patent on your idea before you do;
  2. Once you file a non-provisional, you can relax on this a bit since the USPTO will have your filing in the public records (see First to File section below), and
  3. If you do detect that a patent application was filed for a similar idea by the company, you must immediately inform the USPTO of the transaction you recorded in point 4 in a ‘derivative’ proceeding – attempting to invalidate their patent filing.

Having a provisional, you can offer to disclose the contents of the provisional in exchange for an NDA.  You can tell them that the NDA would ‘expire’ as soon as the non-provisional would be published by the USPTO, and then they would be free to operate as they wish if the parties do not come to a favorable agreement.  To further increase your leverage, and if you are ready, your position would be much stronger with a non-provisional in the same ‘expiring NDA upon publication’ scenario.

FIRST TO FILE: As of March 2013, the patent office only recognizes the first inventor to file a patent application on the invention.  Even if you ‘invented’ the idea first, the patent office will only give patent priority to the first applicant. If you are seeking to make disclosures to big-companies who are potential competitors, I would advise the non-provisional route – especially under these “FIRST TO FILE” laws, it could save you substantial legal costs down the road.  Yes, Provisional secure your spot in line.

If you are interested in more detail related to your situation it is best to speak with an attorney.

Yuri Eliezer heads the intellectual property practice group at Founders Legal. As an entrepreneur who saw the importance of early-stage patent protection, Yuri founded SmartUp®. Clients he has served include Microsoft, Cisco, Cox, AT&T, General Electric, the Georgia Institute of Technology, and Coca-Cola.

Source: Smartup Legal