Modernising the non-disclosure agreement

Patent attorneys are frequently asked to either prepare or review non-disclosure agreements or confidential disclosure agreements. Occasionally, these agreements have negotiated terms or are presented to the disclosing party on a ‘take it or leave it’ basis. However, in all instances, there are terms that should be updated to reflect current business practices.

One such term is the ‘no copy’ clause. Under this term, the receiving party covenants not to "copy or reproduce, in whole or in part, any documents containing Confidential Information except with the permission of the Disclosing Party or his or its attorney". This sounds reasonable. After all, if the confidential information is not to be shared, then it should not be copied either ‒ no one wants copies of their proprietary information floating around.

However, parties in today's digital environment often communicate electronically. When material designated as ‘confidential’ is sent via email, digital copies are made and backed up by necessity. Moreover, when parties exchange information via email or text message, additional digital copies are generated ‒ or, at least, the information is re-transmitted. For this reason, a provision should be included which states:

“Permission is herein given by each Party for the Receiving Party to download and print out copies of electronic files and data as needed in the furtherance of the AGREEMENT, and to exchange such information electronically among employees on a need-to-know basis. Permission is further given by each Party to communicate with the Disclosing Party by electronic means, including email and text messages, concerning the subject matter of the Confidential Information and the Project.”

Another frequently used term that requires attention is the ‘intellectual property’ clause. In this clause, the parties covenant that:

“[A]ny inventions, discoveries or innovations (and any patent, copyright, trademark, trade secret or other intellectual property rights resulting therefrom) that are based primarily upon the Confidential Information prior to this AGREEMENT shall be and shall remain the Disclosing Party's property, and the Disclosing Party shall have and retain all right, title, and interests thereto unless otherwise agreed to later between the Parties by separate written agreement.”

Again, this sounds fair and reasonable, but is it enough?

When the receiving party reviews the technical details relating to an invention, it may have suggestions. These suggestions are likely to represent improvements to the invention that could find their way into a patent application. The question becomes: Who owns the patent rights where a receiving party has either conceived of the improvement or has actually filed its own patent application covering the improvement?

To circumvent this issue, a separate ‘improvements’ clause should be included in the agreement. An example of an ‘improvements to the inventions’ clause is as follows:

“Nothing in this Agreement shall be construed as granting the Receiving Party any rights under any patent applications, or any patents presently or subsequently owned by the Disclosing Party, unless otherwise agreed to by the Parties in a separate written document. Further, the Disclosing Party shall be the owner of any and all improvements or modifications to the Confidential Information and the Inventions conceived of by the Disclosing Party, whether conceived of by the Disclosing Party during the course of the Project, or by a representative of the Receiving Party who has reviewed the Confidential Information, unless agreed to otherwise by the Parties under separate written agreement. The Receiving Party agrees that it will not file in its own name any patent application representing an invention derived from the Confidential Information or based on an improvement of the Confidential Information without the previous consent of the Disclosing Party.”

In connection with this improvements clause, the parties may wish to also include a ‘present assignment’ provision, so that the receiving party "agrees to assign and does hereby assign" patent rights in and to any improvements.

In some instances, the receiving party may view the ‘improvements’ clause as unduly harsh: Why should it be forced to assign technology that it has conceived of? The obvious response is that the receiving party would not have conceived of the improvements were it not for the confidential information. That notwithstanding, the parties may agree that the receiving party should receive either a ‘shop right’ to use the technology of the confidential information or pay to use all of the technology received from the receiving party.