Financial Data
Updated 26 Feb 2020

Think before you share

Understand your rights before you share your IP.

Amos Khumalo, Entrepreneur, 13 July 2012  Share  0 comments  Print

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The background to the recent decision by the Advertising Standards Authority (ASA) to uphold a complaint by Frankie’s Olde Soft Drink Company (“Frankie’s”) that Woolworths misappropriated the ‘advertising property’ in its strapline “Good Olde Fashioned Soft Drinks” has some very important lessons for businesses regarding the sharing of business information with potential business partners.

To refresh your memory, Frankie’s had approached Woolworths with a business proposal for Woolworths to stock the Frankie’s range of soft drinks. The proposal was rejected; however, a year or so later Woolworths launched its own range of products that had a marked similarity with the Frankie’s products, including the strapline “Good Olde Fashioned Soft Drinks.” Sound familiar?

Many businesses and entrepreneurs have been victims of this practice, but have not been as fortunate as Frankie’s in retrieving their intellectual property rights / business ideas from the clutches of some big companies to which they had disclosed their business concepts / ideas.

Protecting your rights

Here are some pointers regarding what you can do to protect your business ideas that might not be eligible for protection as a patent, trademarks or ‘advertising property’ under the ASA Code of Advertising Practice. The tool to use is an agreement known as a Non-Disclosure Agreement (also known as a Secrecy Agreement or Confidentiality Agreement), which must contain at least the following:

  • A clear description of the confidential information / business idea / concept that you would like to disclose;
  • Clarification of the purpose for which the disclosure is made – eg. “evaluation of a possible business opportunity ONLY,” “exploring a potential business opportunity between the Parties ONLY,” etc.
  • The disclosure period – for how long the recipient company is authorised to use the disclosed concept / information;
  • The obligation on the recipient company to return the confidential information at the end of the disclosure period, alternatively, the recipient company must undertake to destroy the confidential information and provide proof of such destruction;
  • Non-circumvention – the receiving company must undertake that it will only exploit the concept / business opportunity with you, the discloser;
  • Confidentiality Term – the agreement must either provide that the recipient will respect the confidentiality of the information indefinitely or for a defined period, such as 5 years. If you are the discloser, you would naturally want the confidentiality term to be as long as possible, however, you may have to  settle on a period of 3 or 5 years, as a compromise;
  • Remedies for breach – your agreement must indicate penalties (e.g. damages) to be borne by the recipient company in the event that they breach the confidentiality obligations. But you can expect the recipient company to push back and require that you either remove such a clause or that you cap the damages at a pre-determined amount, which is reasonable as any party that enters into an agreement would want to limit its exposure to damages.

Balancing risk with reward

The reality though is that often times some business partners simply refuse to sign NDAs; it is not unusual for them to require you to make the disclosure first, after which they will determine whether or not to sign the NDA.

This is a difficult position in which to find yourself, and may require you to make a call whether to take the risk and disclose the information or walk away.

Here are a couple of practical steps that you might wish to consider:

  1. Walk away, especially if you do not trust the ethical standing of the other party. NB the fact that you are dealing with a listed / well known company, regrettably, does not count for much – just ask Frankie’s!
  2. Persuade them to sign the NDA on the understanding that the confidentiality obligations will not extend to any information that they can objectively prove was known to them or within their possession prior to signing the NDA with you.
  3. If the company concerned is insistent that they are not prepared to sign the NDA and you really want to pitch for their business, indicate to them that as far as you are concerned, the information / business concept is your intellectual property and confidential and that it is being disclosed for the limited purpose of enabling them to evaluate your concept / information; further, clarify that should they decide not to proceed with / exploit the concept they shall return the information to you and shall not retain a copy of the concept / information. On the other hand, should they decide to proceed with the exploitation of the concept, they will do so only with your company. Thereafter, confirm all of this in writing.

One further bit of advice: always have a business partner / colleague with you during meetings to discuss such agreements – so you have a third party that can act as a witness should this be necessary in the future.

Finally, have your NDA drafted / checked by a lawyer that is experienced in intellectual property law matters – the days when business partners could be trusted to have “good olde fashioned” ethics are long gone.

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About the author

Amos Khumalo, Entrepreneur

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