One Big Thing to Watch For in a Nondisclosure Agreement

Occasionally, we come up against something that we see rarely, but is of high importance. This is definitely a “forewarned is forearmed”.

The Situation

Our client had received a “standard” Nondisclosure agreement from a potential customer, along with the draft Master Services Agreement.

The Grab For the Intellectual Property

In the middle of the Nondisclosure was a full section on intellectual property. This was wrong in so many ways:

  • Any discussion on intellectual property belonged in the central document, not in the Nondisclosure;
  • The section was drafted so that, upon the client completing the assignment, the customer would own all of the intellectual property embodied in the deliverable or used to create it. The result would be that our client would give up all of its intellectual property rights in its methodologies and in its proprietary software platform;
  • The customer licensed back much of the intellectual property (should the client have been foolish enough to accept this arrangement), but the license was badly flawed, including the fact that it was subject to cancellation;
  • There was no mention of separate payment for the intellectual property. Was the fee the customer paid for the work sufficient for the intellectual property as well? To our client, the value of the intellectual property would (rightly) be nothing less than the amount required to purchase the entire company.

 Was This a Serious “Grab” for Intellectual Property Rights?

One must ask if this was actually a serious attempt by the potential customer to obtain the IP. It does not speak well of their contract process. There are three possibilities:

  1. The Nondisclosure, was the wrong document, sent in error. (What would that say about checks an balances?);
  2. The customer’s hope was that someone would sign the Nondisclosure without reading it, giving the customer the intellectual property rights for a song;
  3. Whoever sent the NDA knew that the onerous terms would be rejected out of hand, but always includes the language for some unknown reason.

The lessons here are obvious:

  • Never, ever sign a Nondisclosure without reading it as carefully as you would any other document; and
  • Beware of a wolf in sheep’s clothing!
Posted in Business Practices, Uncategorized

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