Are you an inventor or an invention owner? Do you intend to do business with the Federal government? Listen up, because we have crucial information for you.
A non-disclosure agreement (‘NDA’) is a contract not to disclose an invention to other people. If an inventor or owner discloses an invention under an NDA and the other party breaches the NDA by, say, copying and using the invention, then the inventor or owner can file suit for breach of contract. The inventor’s rights do not depend on a patent and are not subject to patent defenses. NDAs are desirable for inventors and invention owners.
For a corporation, a person who has ‘apparent authority’ can bind the corporation to an NDA without requiring the board of directors of the corporation to provide that person with specific authority to sign the contract. For example a person in charge of selecting ammunition for a firearms company would have ‘apparent authority’ to sign an NDA relating to a new ammunition design and to bind the corporation to the terms of the NDA.
Not so the Federal Government. In Liberty Ammo v United States, Liberty Ammo developed a new lead-free bullet for military small arms. Liberty Ammo wanted to sell bullets to the U.S. Army. The officer in charge of small arms development for the U.S. Army signed a non-disclosure agreement and Liberty Ammo disclosed the new bullet. Demonstration rounds provided by Liberty Ammo performed poorly in testing and the Army declined to buy Liberty’s bullets. Nonetheless, the bullets that the Army eventually adopted bore a likeness to the Liberty Ammo bullets.
Liberty Ammo sued the Federal government for, among other things, breach of the NDA. Liberty Ammo lost. Why? Because the government official who signed the NDA did not have authority to bind the government to the contract. The official had ‘apparent authority,’ but apparent authority means nothing in U.S. government contracting. To bind the government, the official must have ‘actual authority.’ Actual authority can have two sources: ‘express’ or ‘implied.’ Express authority is set out in statutes and regulations. ‘Implied’ authority means that the government official could not perform his or her job without it. In this instance, Liberty Ammo dealt with an official with neither express nor implied authority. There was no contract and Liberty Ammo was out of luck.
The bottom line? In almost all cases, a non-disclosure agreement with a government official will not bind the Federal government.