Starting a business can be an exciting and potentially lucrative endeavor, and many entrepreneurs are understandably excited to get started. Developing a concept into a monetized reality requires planning and execution, and skipping steps in this process can cost you significantly in time and money. Whatever your business may be, it is important to fully explore and understand any legal issues that can arise in your particular industry, whether those issues are basic state or local licensing requirements or determining what business entity would best fit your needs (discussed in our last blog post here.)
Protecting your most important assets
Of particular concern to startups is intellectual property law, or IP, for short. The advent of internet- based businesses has made novel ideas very valuable, and disputes about who “thought of it first” could result in legal battles of hundreds of millions of dollars. One only need to think of the well-publicized dispute between Facebook founder Mark Zuckerberg and his Harvard classmates Cameron and Tyler Winklevoss to see what can be at stake in an IP dispute; after the Winklevoss twins sued Zuckerberg for allegedly stealing their idea and source code for Facebook, Zuckerberg settled out of court with the twins for $65 million.
The best way to avoid such disputes is to anticipate any issues and put into place legal mechanisms that will protect intellectual property and clearly define the relationships between parties to a business venture. In turn, the best way to achieve this goal is to consult with an attorney who understands the unique legal needs and concerns of startups. In the first of a two-part blog on IP issues important to startups, we will examine two ways in which ideas not yet in the public domain can be protected from theft or misappropriation by other people or parties.
At its most basic, a non-disclosure agreement (NDA) is a contract that exists between parties that identifies certain material, knowledge, or information that the parties to the contract share with one another but may not share with third parties. NDAs are important for parties considering doing business with one another to protect any ideas they need to share while evaluating a potential business venture. For example, if you had an idea for an iPhone or Android app, but needed to solicit bids for the app development, you could use an NDA to ensure that your idea was not stolen or disseminated to other parties.
Another way that a business can use an NDA to protect ideas is by having employees sign an agreement to keep them from disclosing company information or trade secrets to third parties. These types of NDAs are particularly important to tech startups who hire individuals who have intimate knowledge of a product or service being developed.
Trade secrets are defined by federal law in 18 USC §1839, as information, for which reasonable measures have been taken to keep confidential, that has independent economic value because it is not publicly known. Methods of protecting trade secrets include NDAs (discussed above) and non-compete clauses. In addition to preventing employees from disclosing information, employers may also require that employees assign any intellectual property produced in the course of employment to the employer. These types of agreements allow employers to invest in research and development without fear that their employees will walk away with the fruits of their investment.
Trade secrets are regulated by both state and federal law, which generally make theft of trade secrets a crime.
Protect your intellectual property from the start
These are just a few of the intellectual property issues that can arise when starting a small business or a startup. To best avoid any future disputes, it is important to consult with an attorney experienced in intellectual property law. As an entrepreneur, your ideas can be your most valuable asset, and protecting them from the start is the best way to go.