NDAs Are a Bad Idea 

Why Non-Disclosure Agreements Work Against Inventors  
by Harold A. Meyer, III

One frequently ballyhooed concept in the invention industry is the Non-Disclosure Agreement, which in this author's opinion is *usually* a bad idea for inventors.

Non-Disclosure Agreements (NDAs) are frequently touted as a method for inventors to protect their idea. The argument is that a manufacturing company (a prospective licensee) will agree to sign a NDA, allowing an inventor to submit an unpatented  idea in confidence to the manufacturer and protect the inventor's idea. The inventor will have only a minimal investment, maybe a drawing on a napkin, and will leverage the agreement like a budding Bill Gates, grabbing the big corporation by the shorties and forcing a business relationship. The fantasy goes to dream of the day that the manufacturer will accept the submitted raw idea, fund the patenting, and ultimately license the invention  --concluding when the inventor will drive away into the sunset in a brand new Mercedes!

Nothing could be further from the truth.

Inventors are naturally inclined to short cuts. It is part of the inventor's genius to be able to see a technological shortcut. These technological short cuts are what make all great inventions great. Unfortunately, that same methodology as applied to short cutting the essential patenting and marketing process to leverage a raw idea  --is boneheaded.

First, no NDA confers property rights on an 'idea,' only a patent does that. NDAs are no substitute for a patent. Inventors often try to use NDAs as a substitute for a patent. They cook up some invention, and then want people to sign NDAs and give feedback. That business model is a recipe for disaster. At first glance, it shows that the inventor has not done the important secret market research.

Second, most legitimate manufacturing companies will not sign NDAs. There are a zillion reasons why companies frown on ideas, including that most of the ideas aren't marketable or patentable. Another frequently cited reason is that large firms have subsidiaries and affiliates who are integrally involved in their standard process of bringing out a new product, and information needs to be shared freely among them. Actually, many of the larger companies require a stock document, exactly to the opposite of an inventor's NDA template, which says nothing in the submission is to be considered confidential. The extremely low acceptance rate of unpatented ideas for licensing (1 in 10,000+?) will only seem like a good move to the uninformed.

Third, the false security of a NDA is the fuel for many scam companies. Many of the phony invention promotion and submission companies routinely seduce their inventor victims by gaining confidence through the use of NDAs. It is true, they have no intention of disclosing (marketing) the invention anyway! All they want is the large upfront fee, so the NDA is a perfect confidence building tool in the scam.

Fourth, few legitimate technology brokers will sign NDAs because it restricts their marketing, sets up a natural conflict, and opens them up to breach of contract. An NDA which requires material to be held in confidence strictly means that the broker cannot disclose/ market it, the very thing the inventor is presumably hiring a good broker to do! No good broker will simultaneously agree to market a device and also to keep it secret  --an impossibility! So, an NDA attracts the promotion scumbags and repels the legitimate brokers.

Joseph Contrera [joseph@mail.ipadvocates.com], a patent attorney, observed, "Another important point as to why companies don't like [NDAs] is that they are afraid of contamination.  They worry that some crank with an undeveloped idea will come to them when they are already working in the same area.  If they sign such an agreement, then there is always that possibility down the road that the 'inventor' will sue the company for misappropriation claiming they stole the idea from him or her."

The bottom line: an NDA will not allow short cutting the proper stages in the  flow chart of new product development. The fact that an NDA is being used/ considered, indicates a very likely probability that the inventor is not following proper procedure!

The basic lesson for inventors to learn is that there are primarily two stages of new product development: 1) R&D on the technology and on market for the technology 2) Active marketing.

It is very important NOT to confuse the two distinct stages of new product development.

The initial R&D stage must not only prove the workability and patentability of the device, but more importantly, must prove the market for the device, in secret as much as possible; at this first stage, NDAs MAY be appropriate in certain limited cases, but should be avoided whenever possible in favor of proper procedure and secret R&D.

The second stage of Active Marketing must openly court licensees or distributors; the wider the dissemination of promotion, and the better the targeting of customers, distributors, or licensees  --the better.

So the next time you want to open your mouth and request an NDA and sound like an idiot to the inventing illuminati  --just ask yourself if you've followed the proper new product development steps. If you are asking for an NDA, you probably HAVE NOT, and disaster is likely imminent.

One good spot on the web to find an overview of the basic steps is here==>

(c) 9/ 1999 by the author

Harold A. Meyer III, 36, is Chairman of The Hook Appropriate Technology and an accomplished inventor, invention broker and entrepreneur. His latest invention project is PatentPost.Com, a website for listing patents which are available for licensing. He can be reached by email at: info@thehooktek.com

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Page last updated 10/12/99