28 July 2022

Confidentiality or non-disclosure agreements (NDAs) often get bad press, perceived by many as a way of buying the silence of those privy to the unlawful or unethical acts of others. However, NDAs are entirely legal and, in the world of intellectual property, should be seriously considered as one of the most economic and effective means of protecting intellectual property rights.

Recording ideas

Some types of intellectual property will gain protection at the point, or shortly after creation – as soon as text for a novel is written or a photograph is taken, those works will be protected by copyright. Trickier issues can arise in relation to projects which start as an idea, particularly where the involvement of others is required. 

An idea is not protected by any form of intellectual property. To gain protection that idea must be recorded in some form. Until recorded, an idea can be taken and used by others without consent. Innovation generally involves new ideas, and often a period of testing, trial and error and seeking input from others with particular specialist knowledge. This means that there is often period a of time where the idea is refined, before reaching the stage where it could be commercialised.

Some types of intellectual property must be formally registered before protection exists. While trade marks and registered designs are usually capable of registration in a relatively short timescale, patents can often take years before registration is complete. The use of an NDA by a patent applicant is an effective way of ensuring that the knowledge which underpins the patent is protected during the application process and cannot be used by a third party.

Trade secrets

However, NDAs and confidentiality provisions should not just be regarded as a holding measure until registered rights are granted. In many cases, confidentiality agreements are used for generations to ensure the confidentiality of trade secrets. While patents give protection for an invention for the life of the patent, registration involves the publication of the detail and methodology of the invention. On expiry of the registration, that patent then becomes available for all to use freely.

In contrast, confidentiality agreements can continue in perpetuity and in some case can result in much greater economic benefits. For example, one well known cola manufacturer took the decision to keep the recipe for the drink a closely guarded trade secret, protected by confidentiality, rather than apply of a patent which would offer protection only for a limited time.

In these types of situations, it is important to ensure that anyone to whom the idea is disclosed is bound by an NDA which ensures that any information relative to the idea will be kept confidential and will not be disclosed.

The parties to a confidentiality agreement are free to agree the terms of that agreement, including the information to be protected, the duration of the agreement, and the disclosures which may be made. Despite the reputation of NDAs as a gagging measure signed in return for a pay-off, most NDAs which protect intellectual property do not include provisions for payment. More frequently, both parties are likely to gain in terms of future commercial benefits as the idea evolves or the know-how is put to use.

NDAs in the context of seeking funding or investment

While NDAs can be used in the context of dealing with suppliers, manufacturers, retailers and partners in development and production, NDAs can and should also be used where funding or other forms of investment are sought. This allows the owner of the intellectual property to have a more open and frank conversation with potential investors about the value of the project, why it is worth investing in and how returns will be made. The use of these types of agreements is also likely to reassure investors that protection of IP is taken seriously and the project that they invest in will not be developed by a competitor as a result of poor information security.

BTO regularly advises on confidentiality and non-disclosure arrangements and if you require advice, please contact us.

Lynn Richmond, Partner & Accredited Specialist in Intellectual Property: lyr@bto.co.uk / 0131 222 2939