Invention and nondisclosure agreements Featured

4:43am EDT June 30, 2004
Entrepreneurs courageously leave the comfortable behind them to blaze new trails. Their businesses, often built upon new inventions and secret information, can be especially vulnerable if they don't take steps to protect confidential business information and ensure ownership of workplace ideas and inventions.

Invention and nondisclosure agreements can provide protection to aspiring entrepreneurs. Although sometimes called by different names, these "Invention Agreements" generally accomplish three main objectives -- to maintain the secrecy of confidential information and trade secrets; to secure the company's ownership of such inventions and innovations; and to ensure disclosure to the company of inventions or innovations.


Confidential information and trade secrets

Trade secrets are confidential information. But confidential information may not be trade secrets.

In Indiana, trade secrets are defined colloquially as information that the owner tries to keep secret and that is valuable because it is not known and is not learnable by proper means by others who could profit from knowing or using it.

Crucial information might not be covered by this definition, possibly because others could generate it individually, even if it took great effort. Trade secrets should be kept confidential forever, but it is not unusual to require that confidential information be kept secret for a defined period of time.

Therefore, the Invention Agreement should define confidential information and trade secrets specifically and address their confidentiality separately. Also, at the end of the engagement, the recipient should be required to return or destroy all documents, copies, emails, etc., that contain protected information.


Who owns the invention?

Without a written agreement, an inventor will usually own a patentable invention or process unless he or she is hired to invent something or solve a particular problem. Likewise, a consultant generally owns the copyright to his or her copyrightable work unless there is a written agreement that the work will constitute a "work made for hire."

Copyrightable works created by employees generally will be owned by their employers, but only if prepared within the scope of employment. To avoid the unpredictable outcome of disagreements and potential litigation over the question of ownership, the Invention Agreement should state that all copyrightable works are "works made for hire," and that the employee/consultant assigns ownership of all inventions to the company.


Disclosure of inventions and innovations

Although obvious to most companies, it may not be obvious even to scrupulous employees and consultants that they should disclose business-related inventions to their employer.

The identity of the inventor and the method of invention will be important to the company and its advisers in analyzing how and to what extent an invention may be protected. For example, U.S. patent laws require that the inventor (not the employer) submit a patent application.

The Invention Agreement should specify that all new discoveries, works and inventions related to the business be disclosed, and should require the employee/consultant to assist the company in securing patent, copyright or other protection of the creation without further consideration.

In a business environment built on creativity, competitive advantages can be lost due to failures in the security of confidential information and questions of innovation ownership. The effective use of invention and nondisclosure agreements could be the difference between a thriving business and a costly mistake. John A. Millspaugh is a partner in the law firm of Bose McKinney & Evans LLP and a member of the firm's Business Services Group. He chairs the firm's Sci-Tech Practice Group and focuses on assisting science, technology and other entrepreneurial companies with mergers and acquisitions, strategic alliances and other general corporate matters. Reach him at (317) 684-5114 or