Small Business

The Patent Truth


By Karen E. Klein Q: A few years back, I contacted a cosmetology company regarding an invention I wanted to sell. They were interested and had me send them a nondisclosure agreement, but then my product development was derailed due to a long illness. After recuperating, I found they had merged, and that the new company wouldn't even take my calls. Can I go ahead with my product launch? Will I run afoul of their legal department?

---- N.A., Perris, Calif.

A: If you sent them a nondisclosure agreement, it probably was meant to protect your rights to the product, legal experts say, and it should not prevent you from moving forward with your product launch. You do face some potential pitfalls, however. That is why it is imperative that you locate the agreement and have it reviewed by an attorney familiar with intellectual-property issues.

In general, a nondisclosure agreement (NDA) is submitted to the company or individuals to whom an inventor is disclosing a proprietary idea, product, or innovation. By having them sign that agreement before you show them your idea or product, you assure yourself that they will not take your inspiration and run away with it -- or disclose it to a third party. "If the NDA restricted them from doing anything with your product, they don't have any rights to it. And if the NDA didn't impose any restrictions on you, you have every right to pursue the launch without seeking any consent from them," says Elaine Stein, a partner in the New York City law firm of Orrick, Herrington & Sutcliffe.

Most such agreements expire after a certain time (although some can be indefinite), so that's one issue that your attorney should definitely check on. If you've given an invention to this company and enough time has passed for the non-disclosure agreement to lapse, the company may be able to take your idea and develop the product itself, says Stein.

POTENTIAL PITFALLS. Another potential issue is that an invention or an idea for a device is not protectable under either California or federal law unless you have applied for a patent. A patent protects you and gives you a monopoly on the production, distribution, and sale of the invention. Without a patent, anyone can copy your idea and secure the rights to it. "With a patent, you would grant a license to a manufacturer to produce your device, and to a distributor to sell it," says Stacy Sokol, an intellectual-property attorney with Smiland & Khachigian in Los Angeles.

A third point to check on is whether the agreement restricted your activities in any way. Some NDAs have provisions for both parties, and you need to make sure you didn't sign anything saying you would not go elsewhere with the idea, or that you would not take the company's ideas about how to promote your device to anyone else. "In any event, look at your agreement and see what it prohibits you from doing, if anything, and when that agreement terminates. If the time has passed, then you should be free to go to anyone else to promote your idea," Sokol says.

Finally, have your attorney inquire about whether the NDA survived the merger. If the NDA includes a clause stating that it cannot be assigned to another entity without your consent, it is probably no longer valid (unless the original company survived as a subsidiary of the new firm), Stein says. For more information on patents, go to the Web page of the U.S. Patent and Trademark Office at www.uspto.gov. Also, Los Angeles attorney Ivan Hoffman has an article on non-disclosure agreements posted on his Web site that may be helpful: www.ivanhoffman.com/disclosure.html Have a question about running your business? Ask our small-business experts. Send us an e-mail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 6th Floor, 2 Penn Plaza, New York, NY 10121. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.


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