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Do Non-Disclosure Agreements (NDAs) Really Work?

Posted by attorney Raymond Millien

The short answer is “yes."

Consider this true story: A small Kansas firm with newly-developed IP meets with representatives from a large, leading technology company in the hopes of licensing the IP. The parties enter into an NDA which covers the subject matter of the meeting.

Large company informs the small company that it is not interested and will not license the IP. Soon thereafter, large company begins developing its own similar IP and assigns the same engineers who had met with small company.

Eighteen months later, large company begins shipping its first prototype containing functionality suspiciously equivalent to small company’s IP and eventually attains sales levels beyond its initial projections.

In the meantime, small company receives a patent on the IP. Thus, small company sues large company for breach of contract and patent infringement. The jury returns a verdict in favor of small company for $104M ($57M each on the breach of contract and patent infringement claims).

A federal appeals court later finds the patent invalid. However, the appeals court rules that small company is still entitled to keep the breach of contract award — $57M!

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