Why NDA’s Are Not On the Startup Maturity Checklist

Written by Sean Murphy. Posted in 2 Open for Business Stage, Legal Issues, skmurphy

What follows is an e-mail thread converted into a blog entry. I got a suggestion on our contact form related to the Startup Maturity Checklist:

Some software companies will require you to sign an NDA before giving a presentation or sharing any other details about the company’s product. You may want to add this to the checklist.

My answer was that we don’t advise that approach. We do believe that employees should sign an invention and patent assignment form to protect internally developed IP but if you can’t give a basic demo w/o an NDA you are probably either giving the wrong demo or overly concerned.  I covered this a little bit in “NuSym De-Cloaks Part 2”  about two years ago:

  • Quiet mode (stealth mode): I am normally in favor of this, but if you are advertising jobs for folks and identifying yourself as associated with the startup in public forums it can’t hurt to to at least talk about the problem you plan to solve. Other opinions on “stealth mode startups”

He replied with some clarifications (link added, some identifying info removed at his request).

Thanks for the reply. I’m at a start-up in Santa Clara. I mentioned adding the NDA to your list, because I had talked to a few companies in the past who were selling ERP software, and they wanted me to sign an NDA prior to demonstrations.

These days as a startup you normally have to sign a larger company’s NDA form which tends to slow down the whole process for talking to a prospect to the point that it’s counterproductive.

Normally you only get into an NDA level presentation if you are discussing product roadmaps or other confidential information that would not be available in a standard datasheet or website briefing. What may be going on here is that they want to make the presentation seem special because it’s “under NDA.”
How did you come across our site?”

I came across your website and saw the section on bootstrapping breakfast gatherings. I would like to attend, but I do not have a software start-up company.

We get a number of technical consultants (some of whom are hoping or planning to add a software offering to their mix) as well as engineers who are considering striking out on their own. But we tend to have serious conversations that are most useful to folks already in a startup or close to starting one. You are welcome to attend if you have an entrepreneurial itch. Each meeting is different because we get different people attending with new information and new challenges.

With your permission I would like to convert this e-mail thread into a blog post (I would not name you or identify you by company, but mention that the startups that are calling on you ask for an NDA first). Thanks very much for your question and follow up, I will use it as an excuse to write a short blog entry if you don’t mind.

Please go ahead, but don’t use my name or company name. Thanks for taking the time to answer my question and for the various links in the email. I’ll check them out.

I welcome comments, questions, or suggestions on our Startup Stages Model or on other challenges you face bootstrapping your startup. Please use the contact form or e-mail me directly.

We Sign NDA’s

Written by Sean Murphy. Posted in Legal Issues, skmurphy

We get asked “Will you sign a Non-Disclosure Agreement?” fairly often, to the point that we are proactive, suggesting that a prospect take a look at our Mutual NDA [PDF] and sign it if it would increase their comfort level.

A Non-Disclosure Agreement (NDA) allows us to have a deeper and more useful discussion. We will normally have an initial conversation where the prospect can simply decline to answer certain questions but we can have a high level exchange of information.

This surprises some entrepreneurs who are used to Angels and VC’s telling them that they won’t sign NDA (and sometimes being counseled that they were stupid for asking). You can ask a VC them to sign an NDA as a part of their Board of Director seat since they now have a clear fiduciary obligation to the company, but the number of business plans that yield you a VC on your board is perhaps one in 200.

But we are neither VC’s or Angels, aspiring instead to be trusted advisers on strategy and business development. And it seems to me if you are going to provide strategic advice, you have to be willing to sign and honor NDA’s. Since the start of the year we’ve signed three, and will sign two to four a month on an ongoing basis. Obviously it takes more than a piece of paper to inspire trust, but it’s a start.

That being said, I believe that execution is far more important than the idea, and that good execution means that you need to continue to evolve your initial idea.

Legal Issues: Q&A with Pete Tormey of Action Patents

Written by Francis Adanza. Posted in Legal Issues, skmurphy

Today I was able to sit down with Pete Tormey, founder of Action Patents. Pete is a registered patent agent who specializes in providing patents for Software, Electronics, Life Science Instrumentation and Business Methods.

Legal Issues: Q&A with Pete Tormey of Action Patents

From blogs to entrepreneurial events, patents are always a controversial topic. This is why I took the opportunity to speak with an expert. Below are the questions and answers from our conversation.

Q: What is the difference between a patent and a trademark?
A patent protects an inventor for the production or sale of a new useful invention. Whereas a trademark is protection for a distinctive name, symbol, motto or emblem that identifies a product.

Q: If I were to hire a patent practitioner, what are three specific things I can include in my description to make your job easier and reduce costs?
The most important thing is to move beyond just the new idea so that you can explain to the patent prosecutor how to make and use the invention. Secondly provide at least one good sketch illustrating the invention, and finally provide a good description of the technical background and need for the invention. This helps the patent practitioner explain the purpose and value to the patent examiner.

Q: Looking beyond the value in a legal action, how else can patents help me?
A patent has marketing value too. For example customers may view patented technology as superior to a competitor’s product which can greatly help your sales process. Also, for startup companies, getting investment capital may be dependent on having an idea that’s patentable. Patents provide your company with the ability to show people what you do that no one else does. That is a significant competitive advantage.

Q: I have heard people say that a patent is only as strong as the dollars you have to back it, what are your thoughts?
Most patents never go through an entire legal challenge. Simply having a patent may be sufficient because your competition does not want an expensive court battle either. If patenting your technology prevents your competitor from attacking you directly in the market, the patent has done its job without the cost of a court battle.

Q: I have also heard people say that the patent is only as strong as the reputation of the patent practitioner who filed it, is this true?

It’s not the reputation that matters, but the technical knowledge and experience in that industry that have the greatest effect. Most inventors are not really aware of the person who actually drafts the patent. Large firms often use technical writers. The practitioner needs to clearly articulate the invention and draft solid claims to it.

Q: Who may apply for a U.S. Patent?
A patent may be granted to the inventor or discoverer of any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, or on any distinct and new variety of plant, which is asexually reproduced, or on any new, original, and ornamental design for an article of manufacture.

Q: On what subject matter may a patent not be granted?
A patent may not be granted on a useless device, on printed matter, on an improvement in a device which would be obvious to a person skilled in the art, or on a machine which is not useful such as an alleged perpetual motion machine. A patent may also not be granted for an idea or abstraction such as a mathematical formula.

Q: If one person furnishes the ideas for invention and another person employs him or finances his experimentation, should the patent application be filed by them jointly?
No. The application should be signed by the true inventor and filed in his or her name.

Q: Is there any danger that the Patent and Trademark Office will give others information contained in my application while it is pending?

All patent applications are maintained in the strictest secrecy until the patent is issued or the application is published. Publication is limited to only certain applications. After the patent is issued, however, the file containing the application and all correspondence leading up to issuance of the patent is made available in the files information room for inspection by anyone, and copies of these files may be purchased from the Patent Office.

Q: I have made some changes in my invention after the filing of my patent application documents. May I amend my patent application by adding a description and illustration of these features?
No. The law provides that new matter cannot be introduced into the disclosure of a patent application. However, there is a procedure called “continuation-in-part application” that allows the patent applicant to file a new application which contains new subject matter to replace or supplement the original. You should notify your patent agent immediately of any changes you make in your invention.

Q: While on vacation last summer, I found an article on sale which has not yet been introduced into the U.S. or patented or described in the U.S. May I get a U.S. patent on this invention?
No. According to the law, a U.S. Patent can only be obtained by the true inventor, not by one who learns of the invention of another.

Q: Does the Patent and Trademark Office control the fees charged by patent agents for their services?
No. The Office maintains a roster of registered patent practitioners, but the Office does not control fees, nor will the Office help you select a patent agent.

Q: If I obtain a patent on my invention, will that protect me against claims of others who say that I am infringing their patents?
No. There may be a patent of a more basic nature on which your invention is an improvement. If your invention is a detailed refinement or feature of such a basically protected invention, you may not use it without the consent of the patentee, just as no one will have the right to use your patented improvements without your consent.

Q: What do the terms “patent pending” and “patent applied for” mean?
They are used by a manufacturer or seller of an article to inform the public that an application for patent on that article is on file in the Patent and Trademark Office. The law imposes a fine on those who use these terms falsely to deceive the public.

Q: Can an inventor sell his right to a patent or patent application to someone else?
Yes. The inventor can sell all or any part of his interest in the patent application or the patent.

Q: Does a U.S. patent protect my invention in other countries?
No. The U.S. patent protects your invention only in this country. If you wish to protect your invention in foreign countries, you must file an application in the patent office of each country within the time limit permitted by law. Check with your patent agent about costs before you decide to file in foreign countries.

Pete has a great website with a lot of practical advice. One question we get a lot “is what does a patent cost?” Pete has a great “Patent Fees” section that addresses this directly

Action Patents charges $100 per hour for patent preparation and prosecution. There are additional costs such as filing fees and possibly drawing fees. The cost of a typical patent application generally runs from $3,000 for simple inventions to over $7,000 for complex business methods and software inventions.

The legal fees vary depending upon the technical complexity of the subject matter, the quality of the written description provided by the inventor, and the number of revisions required to accurately describe your invention. If you provide a good written description of the invention, your legal fees are less. Government fees are subject to change.

Once an application is filed, there are other costs incurred while the patent is pending. The United States Patent and Trademark Office will issue an “Office Action” setting forth their findings on patentability and may require the Applicant to file a response. After one or two responses outstanding issues are usually resolved. Each response generally incurs about $1,000 in legal fees. After the patent is allowed there is an issue fee of $700 plus a $200 preparation fee.

Once a patent issues there are maintenance fees at 3 1/2, 7 1/2, and 11 1/2 years. They are presently $450, $1,150 and $1,900 respectively for small entities. The maintenance fees are subject to change by the U.S. Patent and Trademark Office.

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