22-Mec-B5 Product Design and Development · December 2016

Question 4 of 7: Non-disclosure Agreements and Securing Intellectual Property

Nivaar worked solution (AI-drafted; not reviewed by a licensed engineer)

Notes on this paper

Paper format. National Exams, December 2016 — 07-Mec-B5 Product Design and Development. Three hours; open book, with a Casio or Sharp calculator permitted. Question 1 is compulsory and carries 40 marks; four of the remaining six questions are chosen, each worth 15 marks, for 100 marks. Six 15-mark questions are printed (130 marks on the page against 100 attempted), and only the first five questions appearing in the answer book are marked. Most answers are expected in essay form or as tables, figures and charts, and the marking scheme on the last page splits every question into its sub-parts. All seven questions are answered here so that the paper works as a complete study resource.

Reference texts. Ulrich & Eppinger, Product Design and Development (McGraw-Hill); Dieter & Schmidt, Engineering Design; Pahl & Beitz, Engineering Design: A Systematic Approach; Boothroyd, Dewhurst & Knight, Product Design for Manufacture and Assembly; Ashby, Materials Selection in Mechanical Design; Kalpakjian & Schmid, Manufacturing Engineering and Technology; O’Connor & Kleyner, Practical Reliability Engineering; Ross, Taguchi Techniques for Quality Engineering; Vaver, Intellectual Property Law (Irwin Law, Canada). None of these appear in the shared mechanical citation file, so each is cited in place.

Question 4: Non-disclosure Agreements and Securing Intellectual Property (15 marks)

Question text not reproduced: the examination questions are © Engineers and Geoscientists BC. Open the official past paper (linked at the top of this page) to read the question, then follow the worked solution below.

A — When non-disclosure agreements are used, and why (5 marks)

A non-disclosure agreement is a contract in which one or both parties agree that information received for a defined purpose will be kept confidential, used only for that purpose, and returned or destroyed afterwards. It is used at every point in product development where technical information must cross a company boundary before it is protected: sending a drawing package to a moulder, die caster or contract manufacturer for quotation; briefing an industrial design consultancy or a test house; opening discussions with a prospective licensee, distributor, investor or acquirer; running a joint development with a component supplier; and in employment and contractor agreements, where confidentiality and invention-assignment clauses do the same work internally.

The reason is that most of what makes a new product valuable is unprotected at the moment it must first be shown. A patent application has not yet been filed, or has been filed but not published; the manufacturing know-how, cost model, supplier list and test data may never be patentable at all. Three distinct functions follow. First, the NDA preserves novelty: patent law in essentially every jurisdiction requires that an invention not be publicly disclosed before filing, and a disclosure made under an obligation of confidence is not a public disclosure. Canada and the United States allow a twelve-month grace period after the inventor’s own disclosure, but most of the world — the European Patent Convention among them — applies absolute novelty, so an unprotected demonstration at a trade show can irrevocably destroy foreign rights. Second, it sustains trade-secret status, which at law depends on the holder having taken reasonable steps to keep the information secret; the signed agreement is the evidence that those steps were taken. Third, it allocates ownership and remedies in advance — who owns improvements conceived during the discussion, what the permitted purpose is, how long the obligation lasts, and the right to an injunction, which is the only remedy that is much use once information has escaped.

Its limits should be stated as clearly as its uses. An NDA is a contract, so it binds only the signatory; it gives no right against an independent developer or a reverse engineer; enforcement requires proving both the breach and the damage, which is difficult and slow; and no agreement can unring a bell. It is therefore a bridge to protection, not a substitute for it: the correct sequence is to file at least a provisional application on anything patentable, then disclose under an NDA, and to disclose only what the recipient actually needs for the stated purpose.

B — Five options for securing intellectual property (10 marks)

The five statutory and common-law instruments below are described in the Canadian frame, since these are Engineers Canada national examinations; the administering office is the Canadian Intellectual Property Office (CIPO).

The five principal instruments for securing intellectual property in Canada
Instrument	What it protects	Term	How it is obtained, and its characteristic weakness
Patent	A new, useful and non-obvious invention: a product, composition, machine or process. Protects the function, and is the only instrument that stops an independent inventor.	20 years from the filing date	Examined application to CIPO; Canada has been first-to-file since 1989, with a 12-month grace period for the inventor’s own disclosure. Costly, slow (3 to 4 years to grant), territorial, and requires full public disclosure of how to work the invention.
Industrial design (design patent in the United States)	The visual features of shape, configuration, pattern or ornament of a finished article — appearance only, never function.	The later of 15 years from filing or 10 years from registration	Registration with CIPO, with a 12-month grace period; cheap and quick. Easily designed around by a competitor who copies the function but restyles the surface.
Trade secret (confidential information)	Any commercially valuable information kept secret: process parameters, formulations, tooling know-how, cost models, customer lists.	Indefinite, but only while secrecy holds	No registration; protected at common law (and by contract) provided reasonable secrecy measures are taken. Offers no protection at all against reverse engineering or independent discovery, and is destroyed permanently by a single leak.
Trade mark	Words, logos, shapes, colours or sounds that distinguish one trader’s goods from another’s — the goodwill, not the technology.	10 years, renewable indefinitely	Registration with CIPO, or unregistered rights through use and the tort of passing off. Must be used and policed or it is lost; protects the brand while leaving the product itself free to be copied.
Copyright	Original expression fixed in a material form: software source and object code, drawings, manuals, technical documentation, user-interface graphics.	Life of the author plus 70 years (Canada, since 2022); 70 years from publication for a work of unknown authorship	Arises automatically on creation; registration is optional and only evidentiary. Protects the expression but never the underlying idea or function, so a competitor may rewrite the same algorithm freely.

Choosing among them is an economic decision as much as a legal one, and it is worth showing that with numbers.

Given. Protecting the roof-rack clamp mechanism by patent costs $12,000 in Canada, $28,000 in the United States and $35,000 in Europe to file and prosecute, plus $18,000 of maintenance fees over the term; grant takes 3.5 years of the 20-year term. The trade-secret alternative costs $9,000 a year in access control, segregated tooling and audit, and carries an estimated 12 % annual hazard of independent discovery or reverse engineering.

Find. The cost per year of effective protection under each route, as the basis for the choice.

Cost the patent per protected year. Total outlay is $12{,}000+28{,}000+35{,}000+18{,}000=93{,}000$ dollars, and the term that is actually enforceable runs from grant to expiry, $20-3.5=16.5$ years, so$$c_{\text{patent}}=\frac{93{,}000}{16.5}=5{,}636\ \text{per protected year}$$in dollars. (Pending applications do give provisional rights on publication, so this is the conservative reading.)
Cost the trade secret per protected year. With a constant annual hazard $h$, the expected life of the secret is $\mathbb{E}[L]=1/h=1/0.12=8.33$ years, so the expected total outlay is $9{,}000\times 8.33=75{,}000$ dollars for$$\boxed{c_{\text{patent}}=5{,}636\ \text{vs}\ c_{\text{secret}}=9{,}000\ \text{per protected year}}$$in dollars.
Read the answer. The patent buys 1.98 times as many protected years for 1.24 times the money, and its protection is good against independent inventors, which the secret’s is not. For a mechanism that is visible on a customer’s roof and can be measured with a caliper, secrecy was never realistic in any case. The correct strategy is layered: patent the clamp mechanism, register the industrial design on the fairing, keep the extrusion die geometry and heat-treat schedule as trade secrets because they are not visible in the product, trade mark the product name, and rely on copyright for the fitting instructions and the fit-guide software.

Question 4 — results
Quantity	Value
Total patent outlay (CA + US + EP, plus maintenance)	$93,000
Effective enforceable term	16.5 years
Patent cost per protected year	$5,636
Expected life of the trade secret, 1/h	8.33 years
Trade-secret expected outlay / cost per protected year	$75,000 / $9,000
Ratio, protected years : cost	1.98 : 1.24 in the patent’s favour
Five instruments	Patent, industrial design, trade secret, trade mark, copyright
Recommended strategy	Layered: patent the mechanism, register the design, keep the tooling know-how secret, trade mark the name, copyright the documentation

Topic. Confidentiality agreements and the Canadian intellectual-property instruments available to a product design team.

Key relations. Patent term 20 years from filing, effective term $20-t_{\text{pendency}}$; expected life of a secret under a constant hazard $\mathbb{E}[L]=1/h$; cost per protected year $c=C_{\text{total}}/\mathbb{E}[L]$.

Why this works. The five instruments are not alternatives competing for the same job; they protect different things, and a sound strategy uses several at once on the same product. Function goes to the patent, appearance to the industrial design, invisible process know-how to the trade secret, market identity to the trade mark, and documentation and code to copyright. The economic comparison then decides only between the two that genuinely overlap — patent and secret — and the decisive question is whether the innovation can be reverse engineered from the sold product. If it can, secrecy has no expected life worth paying for.

Common pitfall. Disclosing before filing. Candidates routinely rely on Canada’s twelve-month grace period without noticing that Europe, China and most other jurisdictions apply absolute novelty, so a trade-show demonstration or a supplier quotation without an NDA forfeits foreign rights permanently. The second error is treating an NDA as protection in itself; it binds one counterparty and nobody else.

Source. Vaver, Intellectual Property Law: Copyright, Patents, Trade-marks (Irwin Law), ch. 2–5; Canadian Intellectual Property Office guidance; Ulrich & Eppinger, Product Design and Development, ch. 16 (Patents and Intellectual Property); Dieter & Schmidt, Engineering Design, ch. 19.

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