Rethinking the Lowly NDA

BlueIron is now using the Ethical NDA from Ethical Collaboration Association, a 501(c)3 non-profit.

The Non Disclosure Agreement is one of the basic agreements that every entrepreneur uses.

For newbies, the NDA is a revered document that “protects” an idea from being stolen.

For older, crusty entrepreneurs, the NDA is a pointless waste of time that cannot be enforced.

The truth is somewhere in between.  I believe NDAs are valuable instruments, but conventional NDAs are structurally flawed.

The conventional NDA came from a conventional lawyer’s belief of “protection.”  Lawyers are taught how to avoid conflict.  If you asked your lawyer what the best course of action would be, the lawyer would always advise you to sit in your basement and never come out.  That is the best way to avoid any problems.

But that is not reality.

Reality is that entrepreneurs need to do business, and they need to do business in today’s business climate.  Today, we have access to huge amounts of information, but even more access to mentors, advisors, coaches, and other people.  In a co-working space, there may be dozens or even hundreds of other people who work for different companies, and each of them may have advice, knowledge, or help to give.

We live in a much more collaborative and interactive world than we used to, especially in entrepreneur-friendly areas like Colorado.  There are countless mentors and experts who are happy to meet for coffee just for the asking.

Getting back to the conventional NDA – does it hurt or help you?

A conventional NDA says that you own your IP and that someone else agrees to keep it secret.  Does that work in a collaborative environment?  It says that everybody owns their IP, but what happens when people collaborate?

For example, I met an inventor who hired a manufacturing firm to build his product.  He had the supplier sign an NDA, and the they began production.  As the supplier began working on the project, they had some suggestions to improve the product.  Their suggestions made the product work better and reduced the cost.  The inventor was very grateful for the advice and filed a patent for the improvements.  After all, he paid for the supplier to do the work and the supplier was being helpful with their suggested improvements.

The inventor and the supplier had a great collaborative relationship.  They worked back and forth to make the product better, and each contributed to the success.  This is exactly the type of relationship we expect in today’s business world.  We value collaboration.

However, the lowly, conventional NDA PROHIBITS collaboration.

In the inventor’s situation, his conventional NDA said that both parties owned their IP.  When the inventor got a patent on the improvement, he had no legal right to the supplier’s suggestion.  The supplier owned that suggestion – as required in the NDA.  This meant that the inventor could NOT get a patent on the improvement to his product – that was owned by the supplier!

The conventional NDA was missing a big element: a collaboration agreement otherwise known as an IP transfer agreement.

The inventor’s lawyer who did the NDA didn’t even fathom that there would be collaboration.  The lawyer was looking to prevent loss, not to facilitate his client’s business.  The inventor probably thought that he had figured everything out prior to hiring the supplier, and he didn’t anticipate the great ideas that his supplier would have.

Enter the Ethical NDA.

The Ethical NDA is the NDA that ENABLES collaboration.

The Ethical NDA has an IP transfer provision that would have ensured that our inventor would have owned the supplier’s suggestion.

The Ethical NDA is somewhat of a bipolar agreement: both parties agree to respect each other’s IP like a conventional NDA, but both parties agree to freely give away their suggestions for the other party’s projects.  In the example with our inventor friend, the supplier’s suggestions to improve the inventor’s product would be transferred to the inventor.  Similarly, if the inventor suggested a manufacturing improvement to the supplier, the supplier would own that suggestion.

We are using the Ethical NDA at BlueIron because we believe in collaboration.  Every conversation is a chance to try out a new idea and get feedback.  Every person has a different viewpoint that can help us tune the marketing message or improve the product offering.  Conversely, we need our clients to success (much more than a conventional law firm).  We want to throw out as many suggestions and ideas as possible for our clients to consider.  We don’t want to be in the business of building products and delivering services, as we have enough challenges doing patents to support them.

We value the collaboration with our clients immensely, and they value it as well.  They understand that with our expertise in patents, we can curate a portfolio of patent assets with their help and collaboration.

This is the type of collaborative environment we relish.

This is why we use the Ethical NDA.