Protect Your Business Idea
It's every entrepreneur's worst nightmare: Someone has stolen your idea. How can you protect yourself?
As an attorney, I am often asked by clients how to protect theirideas. The best way, of course, is to keep them secret. Anyfacetiousness aside, it is a sincere recommendation. Often peopletalk about their ideas to brag, brainstorm and make themselves feelas if they're adding to discussions. But these aren't goodenough reasons for disclosing information you need to protect. Thenext time you feel the desire to talk about your great idea,consider the following guidelines:
- When to disclose information: You should discloseinformation in increasing amounts only as the deal or negotiationprogresses. Make sure that the balance of power in the deal remainsrelatively even in terms of oral commitments or commitments throughinformation disclosure, money or contracts. Be sure to keep carefulnotes on what, when and where information was disclosed and whoelse was present at the meetings. These records can be extremelyhelpful if you ever end up in court.
- How much to disclose: Always disclose the minimumnecessary to close the deal or gain the investment without beingfraudulent or misleading. This allows you to maintain the mostcontrol over your product or idea, as well as protect your optionsin case you need to change the timeline or details later.
- To whom to disclose: Consider who you're talking toabout your product or information. Is the party a competitor whowould greatly benefit from the stealing the idea or product, acustomer who will be helped by the idea or product, a partner whoseown business would be complemented by your success, or an employeewho can gain a promotion by taking the idea as his or her own?
A surprising fact is that the party receiving the information isoften taking a greater risk than the party disclosing information.A good example of this risk is a venture capital group. Thoseseeking an investment are often dismayed to discover that VCsroutinely refuse to sign confidentiality agreements and sometimesmake the submitter sign an agreement stating that if a VC clientlater develops something that looks like his or her idea, thesubmitter agrees not to challenge it.
Consider the VC's perspective. VCs are in the business ofhearing ideas and backing the ones they think are winning. If aventure capital firm were to agree to keep a submitter'sinformation confidential, it would be agreeing that if any of itsother investments were to come up with a similar product orservice, the submitter might be able to claim ownership of it-evenif that product or service was developed by people who had nevereven heard of or seen the submitter's information, or even ifthat product or service was in development prior to thesubmitter's disclosure to the VC. As the risk is high for bothsides in this situation, if you're seeking funding, you'reusually the less-powerful party and you'll often be forced toassume more risk.
For the disclosing party, the risks can also be great. Thedisclosing party risks disclosure of such information to itscompetitors, disclosure of the information to the public and/or useof such information to compete or gain market advantage against thedisclosing party.
Deciding how and when to disclose information is your first stepin risk assessment for your business. With some thought, care andrecord-keeping, it can be managed effectively.
Note: The information in this column is provided by theauthor, not Entrepreneur.com. All answers are general in nature,not legal advice and not warranted or guaranteed. Readers arecautioned not to rely on this information. Because laws change overtime and in different jurisdictions, it is imperative that youconsult an attorney in your area regarding legal matters and anaccountant regarding tax matters.
Judith A. Silver, Esq., is the CEO and founder of Silver LawInc., a technology and business law practice, and Coollawyer Inc., alegal publishing company on the Web. Prior to starting hercompanies, she served as in-house counsel at Adobe Systems andSabre/Travelocity.com. She holds a bachelor's degree cumlaude from Cornell University and her juris doctorate from theUniversity of California, Hastings College of the Law, in SanFrancisco.