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Justus Kreuels - 17. January 2022

Confidentiality agreements

It is not uncommon for the inventor to have to talk about the invention with business partners (e.g., potential producers of individual parts of a new invention), potential customers or consultants even before filing a patent application.

Without an agreed declaration of confidentiality, an invention can already become public as a result of such discussions and is thus no longer eligible for protection. This shows the necessity of a written confidentiality agreement.

NDA as protection against disclosure of confidential information

However, it is advisable to disclose an invention to third parties only within the scope of an agreed confidentiality. This applies in particular to the period until the publication of the patent application.

Before the patent application is published, it can only be filed as prior art to a limited extent compared to more recent patent applications. This creates the danger that competitors take the idea as a starting point, think it through in more detail than the original inventor and then file patents for minor modifications - for the implementation of necessary further developments. This can be avoided with a suitable NDA.

Together with the disclosure of an invention or idea, a whole range of other information is often exchanged in the course of discussions with business partners, such as information about possible other business partners, suppliers, costs or planned uses for the invention. This can also be critical information for which confidentiality is of great importance. An NDA is also intended to protect precisely such information.

Unilateral vs. bilateral confidentiality agreements

Unilateral confidentiality agreements are recommended whenever only one partner receives confidential information. A typical case would be for example an agreement with a cleaning company, which comes into contact with its client's confidential information during the course of its work - possibly even unintentionally. Another case could be the transmission of a patent application to a business consultant, who is supposed to check whether the patent application is considered to be suitable in principle for offering to possible licensees.

Among partners who wish to jointly advance the development and implementation of an invention, bilateral confidentiality agreements are common, in which the partners promise each other confidentiality for the confidential information handed over to each other. From a psychological point of view, such agreements also have the advantage of cooperation at eye level between the partners. Such aspects can always be important if the confidentiality agreement is to be the starting point of a longer-term cooperation in which research and development contracts, supply contracts, etc. may also be agreed later.

A frequent practical problem with concluded confidentiality agreements is that it is not clear or disputed what information was actually exchanged under confidentiality. A preamble that succinctly defines a joint project can be the solution here. However, it is also possible to refer to the content of filed patent applications to define the disclosed subject matter. This applies in particular if the content of the patent applications is discussed or disclosed anyway.

Contractual penalties as part of an NDA

Another point that is often made the subject of NDAs are contractual penalties that become due if one of the partners breaks confidentiality - intentionally or even unintentionally.

The desire to impose contractual penalties is often understandable because it is usually extremely difficult to prove concrete damage that is causally attributable to the breach of a confidentiality agreement. Nevertheless, our experience is that it must be well considered whether this should be imposed on a business partner.

In the first instance, the question arises as to whether a business partner in whom one has little trust - and with whom one would not want to enter into any cooperation without such a promise of contractual penalty - is the right one at all. Moreover, it is extremely difficult to unilaterally impose a promise of contractual penalty on a contractual partner. Typically, a partner would require that such a promise then should be made to each other.

Development of patent strategies

In practice, a promise of contractual penalty often awake covetous motives that can quickly lead to disputes - especially if it is not clear whether information reached the other partner within the agreed level of confidentiality or by other means.

From our point of view - depending on the situation - we tend to recommend to rather refrain from contractual penalties in NDAs. With a well-coordinated patent strategy in advance and the targeted disclosure of only really necessary information, it can be avoided that a breach of confidentiality or damages can occur at all due to the breach of an NDA.

There is extensive legal literature on confidentiality agreements and NDAs, which sheds light on many other aspects. There are also sample confidentiality agreements available online from various providers. Using these is better than not entering into an agreement.

When it comes to properly covering strategic and psychological aspects of a specific cooperation, the patent attorneys of karo IP are always at your disposal.

Regarding Justus Kreuels:



Justus Kreuels, German and European Patent Attorney since 2011/2012, studied mechanical engineering at the TU Munich and the RWTH Aachen. He is co-founding partner of karo IP. A main focus of his practice is the enforcement of intellectual property rights in the field of mobile communication, Internet of Things (IoT), robotics, etc. in Germany.

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