General Question

grumpyfish's avatar

Are compensation or penalties required for an NDA?

Asked by grumpyfish (6657points) November 2nd, 2010

I’m looking at an NDA I’ve been asked to sign regarding discussing an invention with a potential partner.

They’re in the mfg business, I’m coming to them with an idea & prototype.

While I know it would be in my best interest to have a lawyer look over the agreement, the amount of money involved is so small that any potential profits would be tied up in getting a lawyer involved.

So, the question: my basic understanding of contract law is that some compensation (peppercorn principle) must transact for a contract to be binding. This agreement calls out none. Additionally, no penalties are called out in the NDA for breach of contract.

Should I worry about it?

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5 Answers

grumpyfish's avatar

Should add: I’m in the US, the company is in North Carolina, I’m in Pennsylvania.

iamthemob's avatar

The compensation is, in fact, the job. You’ll be getting paid for your ideas – your compensation is your compensation. From the offerer side, it’s best not to provide a penalty in an NDA as it limits your potential damages, and those are hard to determine when you’re dealing with trade knowledge or IP. The NDA would function as part of the overall “employment agreement” (as an independent contractor) and as long as it’s not unconscionable, these are pretty standard. Therefore, a breach of the NDA is a breach of contract.

It’s good to be worried about it…but note that it’s not something that’s unusual…you would need a lawyer to look it over to know exactly what’s going on. If I were you, I would be sure to see if the NDA is limited to (1) their products or business practices rather than (2) your property. If it’s both, you need to be careful, as they might come after you for unintentional disclosures considering you have a limited, IC relationship rather than a full employment relationship (at least, that’s how it sounds).

JustmeAman's avatar

If I were you before you disclose anything , you write it up and put it in several envelopes and mail it to yourself. Once you get a postmark do not open the letters. This actually puts it in a patent pending state and protects you some.

Dominic's avatar

@JustmeAman You’re probably thinking of copyright protection, which doesn’t need to involve the mails; anyway, patents are not “pending” until you apply for them. And “patent pending” has no real legal effect in American patent law, anyway.

As for the original question, your understanding of contract law is essentially correct. However, it’s ”consideration,” not “compensation.” Consideration is something you give up in order to get something else. In this case, the consideration would be the exchange of knowing The Secret Thing, and a reciprocal promise to not talk about The Secret Thing with other folks.

I’m not certain from your question who’s asking you to sign the NDA, but know that you don’t always need money changing hands to have a contract.

grumpyfish's avatar

@JustmeAman Yeah, that doesn’t actually work for patents. For $80 or so I could file a provisional patent and have 12 months to actually file the real thing, but I don’t feel the need to.

@Dominic The person who provided me the NDA is the person with the manufacturing company who would develop the prototype for market, and actually do the marketing. It sounds from the comments that the consideration exists.

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