01.29.07
R. Joseph Trojan
Olga Kay
Trojan Law Offices
Consider this scenario: You run a small medical device company that is always open to innovation. One day you get a phone call from Dr. Strangelove, a local physician who has an idea for a product that he wants you to test. He has some preliminary observations and drawings that he wants you to see. Should you be interested, the doctor warns, he wants to be included on a patent and share in any profits from the future product. You agree to a meeting—why not? Your R&D resources are limited and you have no real access to a clinic. Dr. Strangelove has spent time and effort that possibly is useful to you. What can go wrong?
Dr. Strangelove comes to your office. You look at his drawings and notes and realize that your engineers already had a similar idea. In fact, the company is far along toward the commercial product. Being polite, you thank Dr. Strangelove for his time, treat him to coffee and then see him out.
The new product becomes a success. You barely can fill all the orders that come in. Since your patent has issued, manufacturers compete for the best license from you. Things are looking up, until you get another phone call from Dr. Strangelove. Now he wants to collect his money. You are dismayed—you have not used any of his ideas for the new product. The doctor insists, however, that the two of you had an agreement by which he owns a share of the profits. A bitter lawsuit ensues.
After many months and thousands of dollars in attorneys’ fees, you prove that there really was no agreement. You have taken nothing from Dr. Strangelove and owe him nothing. Alas, you feel that this was a Pyrrhic victory. You have been accused of stealing ideas and reneging on promises. Will you ever restore your good name in the medical and academic community?
Unfortunately, this is not an uncommon scenario. Recently a major biotechnology company was involved in a bitter dispute with an ophthalmologist. The doctor claimed that he had given the company some immuno-stained tissue slides. The slides, he alleged, eventually led to the development of a drug for age-related macular degeneration (AMD) with projected sales in the billions of dollars. For the slides he had been promised a share of the future profits. The company argued that it had not used the doctor’s slides. It already had similar laboratory results on the molecular causes of AMD. As to any promises, nothing was made in writing. In any case, the person talking to the doctor had no authority to make such promises on behalf of the company. In fact, agreements of this kind are never made. Customarily, when the company collaborates with doctors and universities, it merely compensates them for the work done. After a prolonged litigation the company emerged victorious, but, again, at what cost?
Such Disasters Can Be Prevented
It is not unusual for an inventor such as Dr. Strangelove to approach a company in the hopes of commercializing an idea. The dispute with Dr. Strangelove was two-fold. First, did the company actually take any intellectual property? Second, what, if anything, did the company promise? Both disputes could have been prevented if the parties had a non-disclosure agreement (NDA). For the protection of both parties, an NDA is essential before any discussions begin. A typical NDA has the following sections.
The Parties
Although simple, this section should not be overlooked—it states whom each person represents. For example, if the doctor is faculty at a major university, this should be a red-flag warning; any intellectual property generated by such a person is owned by the university. (It would be an unpleasant surprise to be sued by the university trustees!) There is one exception to the ownership rule: the employer does not own inventions outside of the employee’s specialty. For example, if a psychiatrist invents new eye drops, his employer most likely has no rights to the invention. However, most universities require that, in such situations, a faculty member obtain a release form. Without the signed release, the employee cannot enter into any agreements or negotiations by himself.
The viewer from the private company needs to state the position held within the company. This will become very important in litigation. For example, in our scenario, Dr. Strangelove claimed that he was promised that the company would develop a product and give him a share of the profits. With an NDA, the company officer could have pointed to the signature line and said, “My title is ‘scientist.’ I could not possibly have promised either a new product or a profit-sharing agreement, because I have no power over such matters. ”
Identifying Proprietary Information
This section should clearly define what information is being shared. The information may include tissue samples, nucleotide sequences, isolates of a compound and technical know-how. In our scenario, Dr. Strangelove claimed that he had given the company the idea for a new product. This is a very broad definition. In reality, he gave only the drawings that the company did not need. Without an NDA limited to the drawings, Dr. Strangelove was free to make his overblown claims.
Purpose
This section addresses the part of the dispute dealing with promises. The section states the purpose of the exchange. In our scenario, the purpose simply was to view the information. Dr. Strangelove, however, claimed that the company promised a joint venture. An NDA stating that the purpose is limited to viewing would have nipped such claims in the bud. Generally, an NDA will specify whether the viewer wishes to develop and test the prototype or even to make a commercial product. Only then can the company be held to such a promise.
Confidentiality
Although not a part of the dispute in our scenario, this section is at the heart of the NDA. Both parties promise to keep the shared information secret—the company should keep the inventor’s idea confidential. The inventor, likewise, should not tell the company’s competitors of anything learned during the negotiations. Confidentiality also should be required from any third party, such as an outside manufacturer or a testing facility.
Ownership of Rights and Profits
This section should specify what happens to any profits and the patent rights to the invention. Any royalty or a profit sharing arrangement should be mentioned in this section. The absence of such section would have protected the company from Dr. Strangelove’s claims.
As to the patent rights, the inventor may choose to keep the rights to both the original invention and any improvements developed during the collaboration. Alternatively, the improvements may be owned by the company or jointly owned.
As both the real world and the imagined scenarios show, an NDA is a necessary precaution whenever any intellectual property is involved. Attorneys normally charge a flat fee for drafting such agreements. If you have a standing relationship with an attorney specializing in intellectual property, he or she may become familiar with your situation and create a template to quickly and inexpensively provide you with an NDA every time one is needed.