Slashdot Mirror
Are NDA 'Prior Inventions' Clauses Safe to Sign?
BenderMan asks: "I own a small consulting company. Today I was asked by yet another corporate customer to sign an NDA with the increasingly popular 'Prior Inventions' clause. The gist of it is they want you to provide a list of all your past and current inventions and/or ideas so they can define and protect the intellectual property that they have hired you to build. Like many of us that lay awake at night, whilst the hamster wheel spins new ideas, I've got a number of un-patented works in various stages of development. Given that mutual NDAs only provide one year of protection, I don't feel obligated, nor do I have sufficient time and energy, to fully and properly document my inventions for an NDA. While these clauses are written with good intentions, the reality is that these valuable ideas would be placed in the hands of people that could potentially profit with impunity (Have you priced patents lately?). Unfortunately many companies are not willing to strike this clause from their contracts. Does Slashdot agree that this is a concern, and how have you dealt with these situations?"
I was co-owner of a small company that was bought by a larger company for some technology we designed. They hired us to further develop it. I had to sign one of these prior inventions things.
The main thing I was worried about was that these guys were going to buy our company to get our techology then fire us. The project we were working on before we were bought was based off some hobbyist stuff I had built before starting the company. In fact, the core valuable parts remained exactly the same in both the hobby projects and the project we were selling.
Without going into details, I listed the hobby projects as prior inventions. They never really thought twice about it because they looked so inocuous.
This is probably a naive suggestion, but if your business is specialized enough, you might be in a relatively small pool of entities competing for these contracts. Perhaps you could take a few of your competitors out to lunch and ask what they think about these clauses?
If enough people in your market find them distasteful and decide to stop accepting such contracts, the contracts will probably become more mutable than they seem to be now. A vocal minority willing to tighten their belts for a few months and offering lucid objections to the clause might be sufficient to effect some flexibility in your clients.
Of course, that will involve passing up work/money. Might be cheaper to just document the stuff.
The customer does not have ownership of anything not directly applicable to the work they are paying for. They acknowledge that they have no IP rights to anything you may invent on your own time, with your own equipment.
I have had customers demand ownership and license of all our prior work. After I stopped laughing, which really pissed off the purchasing agent, I pointed out that they really didn't want to test that in court, so that clause was declined. They try other ways as well.
Each customer will do their best to stake out territory in your mind. My approach has been to define for them what they may stake out, and what the limits are on it. If you control that conversation, they need to negotiate your terms. They claim they won't, but most reasonable ones will at the end of the day.
For this reason, we don't sign non-competes, and we require mutual NDAs. We have been burned a number of times with others NDA documents, so if we find them insufficient, we force the customer to sign one of ours, or we simply refuse to discuss confidential material with them. Non-competes between organizations are funny, but some customers try to require this. Our response is uniformly that we will sign the non-compete under the requirement that the customer requesting the non-compete execution pay full wages, business expenses, etc. for the entire duration of the non-compete. When they tell you how ludicrous that is, it lets you tell them how ludicrous it is to request that your company not work in its field for a period of time, and if they are going to demand it, they are going to need to pay for what they ask for.
We have had customers steal from us, "partners" lie to us and stab us in the back. It is part of business. Ethics and morality take a back seat to egos, and the pursuit of the almighty dollar.
Your job is to demand certain core rights, and stick to your guns. Have a few you can negotiate away and get something in return for this, but if the customer understands that there are some red lines not to be crossed, well, they will either respect you for it and negotiate, or leave you for some other pushover.
You create something outside of the contract domain, scope, with your own stuff, even if it was during the contract, as long as you did it on your own time and with your own stuff, you own it. You need to demand that. If you don't they are going to insist on owning everything in your head. If you let them push you around here, well, your compensation is going to suck as well.
No other company is going to sign something that one-sided. Where are they going to find staff? It's not going to end until NDA's and assorted silliness get to the point no one wants the job. I have slid piles of paper like that back at customers and said we're either going to trust each other or we're not doing business. Surprisingly effective, but not 100%. If they're that stupid about their paperwork, how are they going to be smart about development? YMMV but I've never seen a contract worth having that had that much paperwork involved.
Drug tests are another one. One company I interviewed with, a telecom in Arkansas, wanted one and I said it was no problem if I could have access to the drug test results of everyone on the management team all the way up to the CEO. That was a head scratcher, no one had asked for that before. I responded that if they wanted to look behind my kimono, I wanted to see behind theirs. Then they had to fess up that the execs didn't get drug tested. Ha! No tickey, no washy buddy. If they didn't, I didn't. Told them to call me when the CEO decided to get tested. They went out of business a couple years later...see what happens when you don't hire me? ;)
It's all really quite insane. I mean I'm sorry that somewhere back in the past you got burned by some former employee but I'm not paying that tab. And if you let lawyers run your life you're not someone I want to work for anyway. People leveraged to the hilt and desperate for a job may have to eat shit like that, but, fortunately, I don't.
That's our life, the big wheel of shit. - The Fat Man, Blue Tango Salvage
I've had to sign documents like that a couple of times. I have never had a problem in practice; my feeling is that the intent of the document is to give them a basis to fuck with you if they feel you did something bad. Since you'd generally have to do something extraordinarily bad to get a company to actually try to go after you -- there's a lot of burden of proof on them, and it would involve significant legal costs -- they probably won't ever do anything and it may not be worth worrying about.
That said, after receiving significant doses of reality early in my career, I prefer to cover my ass when dealing with large corporations. And I agree, most of the forms I've seen are bullshit. (Some even assign all ideas you've EVER had, even before being employed, to the company. Insane.) So I have a general technique that I've adopted.
The basic gist is that you fill out the form, but list a bunch of projects and use codenames for them. "Homer", "Olivia", "Butter", whatever. Throw in nice vague and general descriptions that cover a very broad field that you think you might ever be interested in -- "multimedia application", "browser", "engineering tool" -- and there you go. Put in a good half dozen or more. Don't worry: whatever you put on there, they'll sign it! Your manager doesn't give a crap. It's only the lawyers that want it filled out, and conveniently the lawyers aren't the ones signing off on what you put in there.
Later on, in the unlikely event that they do decide to go after you for something you create, which I've almost never seen, it will be trivially easy to claim that this "multimedia application" was already disclosed to them as "Homer", is thus exempt from the agreement, that you therefore retain all rights, and nyah nyah nyah.
Vagueness is a contract weasel's best friend.
How can they claim that there is any meeting of the minds or that all terms in the contract were fully understood by the 'employee' if it comes up in court later. Can the employers insist that you sign it without giving you time to properly review it (even without a lawyer)?
Because I would consider an employer insisting I sign a contract and denying me the opportunity to review it an abusive employer. But moreso, such conduct would seem to render the contract unenforceable. Can such employment contracts signed under such conditions be upheld by US courts?
This is what's sometimes called an "adhesion" contract. Take it or leave it, and if you don't look the terms the other guys go home with the ball. If you refuse to sign the other party can walk away, but if you sign the thing (in some juristictions) the adhesion is a potential reason for calling the whole contract poop.
This kind of thing distorts the very reason that contracts exist - so two parties can formalize a "meeting of the minds" over a certain expectation of performance. When one party has absolute power to dictate terms, then what we have isn't really a contract in the classical sense at all. But that doesn't mean it is unenforceable.
IAMAL
(but I will be one soon!)
I also believe the whole patent system is a complete sham. Patents are good as long as you have tons of cash for lawyers to fight and protect it. Any good lawyer can subvert a patent. Yes I have personal experience in this and I'm kinda bitter about it. Wasted a lot of money for this information.
If you guys are bored and want some shits and giggles, search the US Patent office. There's all kinds of stupid ideas there that will never fly and/or never be able to produce. Doesn't stop some lawyer from taking 10 grand from a bozo though.
I'm not anti-social, I'm anti-idiot.
I would never specify in a contract what my prior art is. My contracts always specify that anything belonging to the client prior to the contract remains theirs and anything belonging to me prior to the contract--or that I come up with during the contract but not materially related to the contract--remains mine. No lists are necessary. If there's a dispute over who owned what when, that's what courts are for. I'm not going to enumerate my property because it then implies nothing else was mine. No way. Let the contract stipulate the spirit of the contract (that no-one is trying to rob anyone else's idea) and if someone believes that spirit was violate, take it to court and let it get worked out there.
I've been in a similar situation. I'd done some development work for a public (but non-government) body without any such NDA stipulations; the body was then taken over by a government agency which then tried to impose these kind of conditions retrospectively to complete the small remaining part of the work. As soon as I consulted a lawyer they freaked out because their procedures didn't allow for anyone to question their standard terms and conditions, even when they had not applied at the start of the contract.
They certainly had no intention of negotiating and ultimately attempted to redevelop the entire system for themselves (3 people for 2 years) before deciding that it wasn't the job of a government agency to be a software house and so scrapped their development effort. They then went out to buy a different package from a 3rd party over which they could assert no rights as it was entirely developed prior to their purchase of it. As I write they'are at least a year behind in the rollout of this new package.
So don't underestimate the stupidity of your potential clients. They may well be prepared to spend vast sums of time & money and have no ultimate stake in the IPR of their solution provided that they can demonstrate they have stuck to the standard terms and conditions their lawyers worked dilligently to produce.
From my point of view, the fact they walked away was a good deal in the short term: I got more revenue from supporting the original system than I ever expected to get out of the project simply because they couldn't afford to be without it while they figured out how to get rid of me. Bad news in the long term, though, because this is a part of the world where most work is government-funded in one way or another and you mysteriously stop being asked to tender for work if you seem to be "difficult".
How much of a business are you likely to have if you make it a policy not to accept contract of this kind? If you've plenty of other work, then fine; if not, it comes down to your need to feed versus your self-esteem.
One of the things too few people allow for in their business plan is the "fuck you" factor. Businesses tend to be highly geared to secure growth and it can be difficult to walk away from potential clients because you need the money to service your borrowing and pay for your staff. I've always made sure there was a reserve account to make it easier to say "no" now and again. However, there's always some stuff you just have to swallow if you want an income: having a business is worse than being employed in that respect because at least an employee has rights...
My company does exactly the opposite, with one clause: Any code we produce under contract is owned by the customer, but we reserve the right to excerpt algorithms or functions for reuse in other code (under contract or not). There are a couple of big advantages to that:
We're all geeks here. All you had to say was Kobayashi Maru.