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Today’s topic is non-disclosure agreement templates. I’m excited about this topic because this topic comes out at every meeting I go to with a group of inventors and entrepreneurs. Everybody always asks, “What do you use for a non-disclosure agreement?” It amazes me how many people are thinking they have to have it. To be fair, we thought that way toward the beginning of our careers, almost 20 years ago.
Tom and I are torn about it. Because we are inventors, we understand that people want to protect their idea. But we have a lot of history. So we also have some realities on whether or not it is really worth the paper it’s printed on.
The lawyers should stop reading now because I don’t need your emails. We are not attorneys; the advice we are giving you is not advice an attorney will give you, but some real-world practical advice that we want you to hear. It’s business advice from our business experience. That’s the reality of it. Non-disclosures were very important to us at one point, and now not so much.
But if you are going to have one, we will share with you the one that we use. We do sometimes still have to use one, and it’s not because of us. Usually it’s because of someone else who wants us to sign one before they will disclose their product/invention to us. We do think this has relevance because you may be starting a new 3D print business or product idea and want to talk to other companies, and you are worried about protecting yourself
Listen to the podcast here:
Non-Disclosure Agreement Template for Better Business Negotiation
I want to preface this by saying that for those who don’t understand what a non-disclosure agreement is, is that a non-disclosure agreement is just an agreement between two parties, assuming you and some company want to receive your idea, and it is an agreement that if this information is not publicly disclosed already, if it’s not found out later in a press release or other public places, and that you were the originator of that, they are going to keep it private. They are not going to disclose it to other parties without your permission. Usually, they are not going to disclose it to parties outside of their company.
Usually they can disclose it within their company. One person will sign it on behalf of the company, and they will be able to talk about it internally in the company only. Everybody in the company is bound by it. There is some language in there typically that says it has to be marked as confidential and included in this agreement. Things like that.
I also want to preface this by saying that just signing that agreement with a company or individual you have never done business with in a specific situation is very different than having a non-disclosure clause in a contract. Those we firmly believe in. Those are extremely important to protect your relationships with your clients. Those are not the same thing. That is a very standard clause or provision within a contract for two companies that will do business together over a longer period of time. We have had clients for multiple years, and we have a blanket non-disclosure, so we can talk freely about anything and feel that we are protected. And they know they are protected when they are sharing proprietary things to us.
The only caveat in that is one of the parties has to tell you that it’s confidential in that arrangement. It can be verbal. If you are attaching a document in an email, you just say that it’s confidential and covered in the non-disclosure. Something like that is all you need to do to make sure that that disclosure is covered.
I want to be careful with that. That is not the same thing. We always protect our client’s information because even their email lists, their client lists, and their buyer lists are confidential information that happen through our relationship. Those must be kept private. That is part of relationship building.
Very different than you soliciting someone by sending them something and wanting them to hear your idea. This happened to me yesterday, and it happens a lot in our business, on a weekly basis. We get inventors or people in business referred to us from colleagues we know, and they have a good idea having done nothing to protect it yet. They haven’t filed a copyright or a patent, or maybe it’s not even patentable. They don’t want to talk to us about it until we sign a non-disclosure.
Here’s our take on it. Over the years, we have a non-disclosure that we use, and it needs to be mutual, meaning that if in the conversation they also disclose something to you that is confidential in the discussion about something, you must keep it confidential as well. It has to go both ways. If it’s not mutual, it’s not worth signing, and I can tell you pretty much any company will reject it. Any attorney should. So if someone gives you something that says it’s not mutual, that you have to keep something confidential but anything you disclose to them they don’t have to keep confidential, walk away from that deal. It is not worth it.
We are not proponents of using non-disclosures in the early stages of any negotiations or relationship-building. It is not in good relationship-building situations. For instance, the minute I get somebody who says, “I really want your help on something, and I really think I have a great idea. But I won’t talk to you unless you sign that non-disclosure.” How do you feel when somebody says that to you? It’s off-putting. I always feel that way. I think a lot of times that becomes an impediment to building a good relationship. Immediately I am annoyed. You really think you need my help, but you don’t trust me. You came to me, but you don’t trust me. That’s how that comes across.
Initially, that is already off-putting. Secondly, halfway through the conversation, you find out they have already filed a patent. The non-disclosure agreement is a waste of time at that point because you are protected under the patent. It’s a moot point. If you have actually filed a patent application, you have a priority date by which if nobody files for what you did before you and that is what you assume—otherwise you have wasted your money if you haven’t figured that out or tried to figure that out trying to file your application in the first place—then there is no reason to assign an NDA. That includes provisional patents as well as long as you are going to follow through and in one year file the full application. I agree with that, Tracy.
Now you annoyed me from the beginning. The second thing is that it comes out that you file a full or provisional patent or something along those lines. Now you sound ill-informed because you didn’t realize or understand that your patent covers everything. Or you sound naïve, like a rookie in business. Now you have two strikes against you.
In the back of my mind, the third strike is that I don’t know if you are too high-maintenance to do business with. Do I not want to take you as a client? Are you just too high-maintenance to talk to? Already you have put it in a difficult situation. This is just assuming you want my help.
Imagine if you are trying to sell someone something. You want them to license your patent. You want them to buy from you. You go in there immediately and say, “I have the next best thing since sliced bread.” Believe me, every inventor out there thinks that. There are a lot of 3D printer people who think that, let me tell you. “You should buy this and pay millions of dollars for this, but I don’t trust you enough to disclose it without a non-disclosure agreement in here. To have a single conversation. That is where it goes all wrong.
We have seen this happen. We have experienced it ourselves early on, and we have seen countless other people do it, too. They end up tipping their hand that they don’t have a lot of experience. They have never licensed or sold intellectual property before because they do these things that are really outside of normal standard business practice and maybe in terms of making a good impression are really getting you off on the wrong foot.
My biggest pet peeve about this is you are an independent inventor and are a new businessperson. Maybe your intellectual property has something to do with how you are going to engage in business in 3D printing. Something about a website or a new distribution channel. You want to have people sign this non-disclosure.
You are going to go and have Stratasys or Autodesk sign a non-disclosure. Let’s say they violate it. Let’s say they do that. Your only remedy to cure that is to sue them. How successful are you going to be as a little guy without millions of dollars to go sue a big company that will bury you in paperwork and delays?
And how likely are you to have proof that they violated it and they didn’t get that information elsewhere? All they have to do is show that they got that information elsewhere in a public place and/or somebody had already come to them with a prior idea or they had already had it internally. You have no way of knowing if that is true or not.
From a practical reality perspective, non-disclosures really don’t do anything to protect you. If you really have something that is unique intellectual property, that’s why we advocate that you file a patent before you disclose it to a company or get a copyright, whatever applies. Then disclose it. Have the comfort and satisfaction that you are first. Or find a way to talk about the idea and the concept of it without getting into great detail.
That is the problem right there. Every inventor under the sun continues to tell me every little detail about their invention and their engineering and how everything is made and what everything does. The reality is you haven’t gotten me to care yet. You have to get across in your first meeting the essence of why I should care, why it really is the next best thing since sliced bread, and what is special about it. That involves nothing to do with the what, the very technical details. You should be able to communicate that without disclosing anything proprietary. When you get me excited about that, then I am willing to go to the next step and listen a little further.
When I listen a little further and I start to like you and think that I might want to do business with you, at that stage, when you start to get into great detail and say, “I have filed a patent, but there are still some details in flux and may result in future patents. I’d like us to sign a mutual non-disclosure.” We already have a relationship, and at that point, I am eager to hear the idea. Now I am highly likely to say, “Sure. We have a boiler plate one. Do you want to sign ours?”
That is the first indicator that this is the smoothest path to a good negotiation. If you have a company that says, “We already have one. Would you mind signing ours?” it is the fastest method to not getting a lawyer involved in the process of the discussions. As soon as a lawyer gets involved, you put the brakes on the momentum of your pitch and your excitement and all of the good things you are building. Lawyers get involved and negotiate this agreement, and everybody is exhausted by the time it is signed. What was it that we were going to talk about in the first place? You have lost all of the good rapport you have built.
Again, it has to be an agreement that is mutual and not difficult for you to sign. If you can sign theirs, sign theirs. It is the fastest path to continue your discussions and that good relationship building.
I want to touch on one more thing. When you are in the process of talking about things, it’s always okay to keep something proprietary. That’s an okay thing to do. You don’t have to disclose everything. No one expects that. Full disclosure is a due diligence thing when you get to a contract level. At that point, there will be a non-disclosure in place because at that point there will already be attorneys in place. There might even be proposed terms of an agreement, and there is non-disclosure associated with that part of the agreement. There is a place for it. It’s just not at the beginning of a relationship.
We are happy to share our non-disclosure template with you on our website. This is being offered as an example. We are not saying to use ours. We are not attorneys. It’s just a reference for you of one we have used over the years. Again, we don’t use it very often. It’s very rare that we use it. Example-Mutual NDA
But we wanted you to understand that business practice and legal practice are two different things. Sometimes things aren’t practical and do damage to the business practice process and the relationship building process. This is one of those things that can have that effect. Ultimately, companies, including you as an individual starting a new company, need to make a business decision as to what action they are going to take, not always what a lawyer might recommend as the safest legal move. There are reasons they want to do something anyway. This all falls under that genre.
Again, it is less likely that someone is going to invest in your idea and more likely they will invest in you. If they are going to invest in you, that requires a relationship. Anything that gets in the way of that is detrimental to that process.
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