Each time an inventor or entrepreneur considers talking to VC's he faces the same dilemma - what and how one can reveal information about the venture and still maintain a reasonable level of confidentiality.

On one hand, VC's need to understand the technology in order to evaluate the profitability of the investment. On the other hand disclosing the information might expose the venture to severe risks.

One obvious risk involved in disclosing information is the exposure of the venture's core technology and business to third persons not obligated in any way to maintain the information in confidence or not to utilize the information for their own benefit.

It is worthwhile noting that Section 6 of the Commercial Torts Act of 1999 prohibits using a trade secret if there is a contractual provision restricting such use. However it is also likely that the legal proceedings involved in the enforcement of this Section are long and expensive. Lacking written evidence for contractual relationship, the outcome is uncertain.

The second major risk might occur when an entrepreneur considers obtaining a patent. One of the requirements to obtain a patent is novelty of the invention. In general terms, novelty means that the invention has not been published before the date of the patent application.

With several exceptions under Israel and U.S. law, any public disclosure of the invention prior to filing for a patent is "prior art." In other words, if the entrepreneur discloses the information about the invention he might cause the invention to be non-patentable.

The most common way to avoid these obstacles is to prepare a nondisclosure agreement ("NDA"), which should include a covenant of the VC to keep the information confidential and not to utilize the information in any way except for evaluating the investment.

The major drawback with NDA's is that VC's do not like signing these agreements, as they might restrict them in many ways, most significantly from pursuing investments in other companies with similar technologies.

The best way to deal with the drawbacks of NDA's and to prevent the risk of exposing an invention before applying for a patent is to file a provisional patent application in the U.S.

A provisional patent application is a simplified, temporary and inexpensive patent application that may be replaced by a full patent application within 12 months of the provisional application date, while preserving the priority date of the provisional patent application. This application sets the filing date for the invention, which later may be used as evidence in a court of law.

Provisional patent applications have additional benefits. They provide a period of 12 months to evaluate the technology and invention before having to pay the costs of filing a complete patent. After filing a provisional patent application one may use the prestigious "patent pending" mark. Finally, the filing date of the Provisional patent application may be used as a basis for applications outside of the U.S.

Originaly published at http://israel.internet.com