The following article appears in the journal JOM, 51 (12) (1999), p. 56. JOM is a publication of The Minerals, Metals & Materials Society

Outside Invention Submissions--Is it Better to Give or to Receive?

Both the person disclosing an invention to another to commercialize the invention ("Owner") and the recipient of such a disclosure ("Recipient") assume substantial risks. An appropriate underlying agreement setting forth the basis of the disclosure can reduce the risks. The Owner assumes the risk that the Recipient or an employee of the Recipient might misappropriate the invention. The Recipient assumes the risk that the disclosure might be an invention that the Recipient created previously. When the Recipient places the product on the market, the Owner might assume that the invention has been stolen and make a claim against the Recipient.

It is common for an individual or company to conclude that the best way to commercialize an invention is to have a third party do so under a license agreement. It then becomes important for the Owner to identify an appropriate Recipient capable of commercializing the same. From the Recipient's standpoint, an outside disclosure might serve as a basis for providing new business opportunities. From the Owner's standpoint, the most desirable way of making the disclosure would be to have a written confidentiality agreement. Under such an agreement, the Recipient would be receiving the information solely for purposes of evaluation to determine if there is interest in participating in efforts to commercialize the invention. The agreement would also typically provide that the information would be maintained in confidence and not be used. Certain standard exceptions to confidentiality, as well as other common provisions, would also be recited. A more complete discussion of such agreements appears in this series in the May 1995 issue of JOM.

The Recipient desires to evaluate a potentially meaningful invention without assuming undue risks. While it is difficult to generalize in this context, the more sophisticated the technology and industry, the more likely the Recipient will be to consider signing a confidentiality agreement. A pharmaceutical company is, for example, more likely to agree to receive a disclosure in confidence than would a board game manufacturer. The background and credentials of the one seeking to make the disclosure would also normally be considered.

Many companies that are unwilling to receive a disclosure on a confidential basis have a standard disclosure form. While there are numerous variations in such documents, it would be typical to expect the following:

• Recipient assumes no obligation to the Owner due to the mere receipt and evaluation of the disclosure.
• Owner will rely solely on its patent rights.
• No obligation to the Owner will exist until such time as a further written agreement is entered into between Owner and Recipient.
• The disclosure is not received in confidence.
• Recipient will let the Owner know whether there is any interest in having further discussions and, if not, the Recipient is under no obligation to provide reasons.
• Owner was not requested by the Recipient to make the disclosure.

Some policies of this sort contain additional provisions, such as a commitment on the part of the Owner not to disclose the invention to others for a given period of time (e.g., 60 days) in consideration for the Recipient's evaluation the disclosure.

Most major companies have an outside submission procedure. Typically, all such matters are handled initially by an individual who is not technically trained. Only upon receipt of an executed agreement approving the company's proposed terms would the disclosure then be passed on to others in the company for substantive review.

Assuming that the Recipient is unwilling to receive a disclosure on a confidential basis, the Owner must make a decision. The Owner can see if others are willing to receive the disclosure on such a basis. Other options include forgetting about it or signing the agreement proposed by the Recipient. If a patent application is pending, assuming that a patent providing good coverage is likely to issue, this provides one dimension of protection for the Owner. Also, regardless of the content of the form, the Recipient cannot engage in fraud or regard the document as a license to steal.

Assuming that the Owner is willing to make the disclosure on the basis of the Recipient's form, the form must be reviewed carefully in respect of other legal considerations. Suppose, for example, the development is not effectively protectable by patent, but copyright protection has been obtained. This may be true, for example, in the case of computer software. The Owner should request that the agreement be modified to state that the Owner is relying on patents and copyrights.

Assuming that the disclosure is going to be made, a transmittal letter clearly referencing the disclosure agreement and listing in detail exactly what is being submitted should be employed. Copies of everything submitted should be provided. To the extent to which there are any oral discussions, detailed notes of the conversations should be created in a timely fashion.

A further risk assumed by the Owner in instances where disclosures of the inventions are made to a substantial number of Recipients on a nonconfidential basis is the potential forfeiture of patent rights. In the United States, when one publishes an invention, places it in commercial use, or places it on sale, there is a one year grace period within which to file a U.S. patent application. Most major countries outside of the United States have what is known as "strict novelty." An invention known to or used by the public prior to the effective filing date of a patent application in that country bars one from obtaining a valid patent.

From the Recipient's standpoint, blended with the positive opportunity to acquire rights in an invention that may have substantial commercial potential, there is the risk of damage to good will and legal claims asserting misappropriation of the invention. There have been many instances wherein companies that had been working on a given product for many years subsequently received a substantially identical disclosure from one making an outside submission and indicated to that Owner that there was no interest in pursuing acquisition of rights. Upon seeing the Recipient place the product on the market, the Owner assumes that the invention has been stolen.

In the event that the Recipient is interested in acquiring rights in the invention, such a transfer would be governed by a subsequently negotiated and executed technology-transfer agreement.

Regardless of whether one is the Owner or Recipient, it is important that the basis of an outside disclosure be set forth in an appropriate written agreement and that the risks versus benefits of such a disclosure are weighed carefully.

Arnold B. Silverman is chair of the Intellectual Property Department and a member of Eckert Seamans Cherin & Mellott, LLC in Pittsburgh, Pennsylvania.

For more information, contact A.B. Silverman at Eckert Seamans Cherin & Mellott LLC, 600 Grant Street, 44th Floor, Pittsburgh, Pennsylvania 15219; (412) 566-2077; fax (412) 566-6099; e-mail ARNIE@TELERAMA.LM.COM.