Startup Growth Series

A startup lawyer's advice on how to protect your ideas – Part 1

Credit: Cynthia Igodo

Cynthia Igodo is a general practice lawyer with interest in payments, fintech, cyber-fraud and telecommunications law. She was formerly the lead legal adviser at VoguePay. You can connect with her on LinkedIn or shoot her a mail at karcyyn@yahoo.com

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Let's start with a little advice:

"Intellectual property does not protect your idea per se – it protects your expression of the idea"

In other words, you cannot claim intellectual property rights over every idea that 'pops' into your heads. You can only protect an idea that you execute on.

The idea has to be tangible to be eligible for protection.

This means that you need to “fix” the ideas onto a definite medium (for copyright) or register your logo, design etc (for trademark) or describe and register your invention or invented process (for patent).

Before you can establish that someone infringed on your intellectual property, you need to know what the rule says.

That rule - the rules for establishing infringement of Intellectual Property Rights (IPR) -  indicates that a mere assertion that you had a conversation and the person ran with your idea is not enough – the extent to which your idea was copied (or designed around), will be considered.

How do you protect your idea from being stolen ?

One of the most pressing concerns for inventors and/or creators pitching for funding is how to prevent investors who refuse to invest from stealing the idea?”

Here are a few ideas;

1. Don't let the cat out of the bag.

The best way to protect your idea is to be careful who you discuss the idea with.

Adopt a strictly 'need to know' policy with regards to who you share the idea with, how much you share and where you share.

Odun Longe, suggests pitching your ideas without revealing your trade secrets.

This can be done by revealing your unique selling point ('the what') without letting the cat out of the bag ( i.e. the 'how' and the 'why')

On the flip side, don't over-protect your idea such that you end up driving investors away.

Your aim is to be smart in protecting the idea.

Also keep in mind that if you don't risk sharing your ideas, you might derail your chances of executing same.

2. Find a lawyer

The first step to selling your idea to companies and investors is to get a lawyer that specializes in contract and intellectual property laws or in start-ups.

This is very important if you want to go through the process of selling your ideas without losing your idea in the process.

Your lawyer will come in handy when you are negotiating a deal and will also help you review and negotiate any terms or agreement to be sure you err on the side of caution. The lawyer can also help with the protection of your IP at the necessary government office.

3. Know Your Investor.

This basically means that you should not pitch your idea to every Dick, Tom and Harry in your neighbourhood hang-out.

Before you open up about your ideas to an investor, conduct some background research on the person/company.

Let's call it Know-Your-Investor (KYI).

According to LawPadi.com, you can KYI  via a 'Google search' of the investor and checking professional and social networks such as LinkedIn, Facebook etc.

As part of the due diligence process, you can engage the services of a lawyer (or do so yourself) to conduct a search at the Corporate Affairs Commission (if the investor is a Nigerian based company) to get details about the shareholding, directors etc.

You can also investigate court records to find out if there are any pending court cases which the company or its directors might be involved in.

4. Leave a paper/email trail

Try to document any conversations you have with anyone about your idea.

This can be done via emails, letters etc.

This paper trail may be some sort of business proposal or document, which should be sent to
investors to document the birth of your idea.

Though this does not in itself protect your idea, it however provides evidential proof to back up a claim you might make in future in an infringement action.

Odun Longe suggests ​ sending a thank you email after meeting the investor.

In the email document, use language that would elicit a form of response from the Investor.

For example –

#####

Dear Soon-To-Steal-My-Idea Investor,

It was a pleasure meeting you yesterday. Thank you for taking time
out to listen to my “idea that is oh so awesome that no one else has
ever conceived it”.

Even though at this time, you are not desirous of investing in my “oh
so awesome idea”, I look forward to the possibility of engaging or
working with you in another regard. If you do not mind, would it be
okay for me to reach out to you by email if I need your advice or
mentoring at some other time?

Best regards,

Awesome Founder with unique ideas

#####

 

A Personal Experience....

I worked on a transaction that involved an insurance pitch.

The creator had an idea for an insurance product that was unique to a group in Nigeria and would be very valuable, commercially to any insurance company.

The creator prepared a business proposal.

She shared all the details with a potential investor, including the proposed name of the insurance, the target audience and how the product would be rolled out.

Several letters and email exchange  took place.

It was a huge surprise that the insurance company decided not to back the product. However, a few months later, they rolled out an insurance scheme similar to the one developed by the creator.

The creator went to court.

Lucky enough, because there was a lot of documentary evidence to back the creator's claim, the matter was settled out of court.

4. If possible, initiate Contracts

There are a number of contracts that may help to reduce the risk of intellectual pilfering.

Depending on your particular needs, here are some options:

A.. Non-Disclosure Agreement (NDA)/ Confidentiality Agreement
If your investor agrees to sign one, this is the very first step that should be taken before any aspect of your idea is discussed.

The NDA defines confidential information, stipulates how either party treats such information and the consequences for breach.

Most NDA contain a clause restricting the investor from investing in or starting a business or using an idea similar to that disclosed for a period of time (usually 3-5 years) after the termination of the NDA.

If the investor tries to use your idea afterwards, without giving you credit, you may have a claim against the investor under the NDA.

However, most experienced investors do not really like the idea of signing an NDA for initial discussions. The reason being that they believe that ideas are a dime a dozen and it does not serve their interest to constrict themselves even before they hear your idea, on the slim chance that your idea is the 1 million dollar idea which is completely unique and would create the next Mark Zuckerberg.

B. Non-Compete Agreement (NCA).
This agreement prevents your co-founders or key employees from going to work for your competition or starting a competing business, within an established radius, and for a defined period of time.

An NCA is a great way to shield you from risk.

However, it has to be worded in a fair manner, and should indeed be used to protect your business, and not to punish employees or co-founders who move on from the business.

C. Work-for-hire Agreement.
This applies where you hire someone (a consultant or freelancer) to help fine-tune your product or service.

To protect your idea, this agreement makes sure you establish that you own any and all intellectual property to the improvements made to the idea.

Thus, employers can use this agreement to ensure that they retain intellectual property in the inventions or work of their employees hired for that particular purpose.

The entrepreneur should allow the consultant to retain a limited right to advertise the work as theirs.

Such a clause should be explicit and ​ read something like this​ :

‘The Consultant hereby undertakes that upon full and final settlement of payment for services rendered, the Work Product, including, without limitation, all Intellectual Property Rights in the Work Product, will be the sole and exclusive property of Client, and Client will be deemed to be the author thereof.

The Consultant hereby automatically irrevocably assigns to Client all worldwide right, title, and interest in and to such Intellectual Property Rights. The Consultant retains no rights to use, and will not challenge the validity of Client’s ownership in, such Intellectual Property Rights.”

5. Swear an Affidavits

You can swear to an affidavit to protect your idea.

According to Rotimi Fawole​, this will be helpful particularly if you are discussing illustrations, designs, pitches for T.V shows etc. with your investor, and haven’t had a chance to register your designs or illustration.

The affidavit can simply state that you intend to discuss the project with the investor and that a copy of the designs you are going to discuss are attached as exhibits to the affidavit. This way, it is clear that the designs were your creation as of the date of the affidavit.

Next steps....

The next step is to make sure the law recognizes you as the creator of the idea.

If it’s an invention, script, logo or design, there’s no harm in obtaining registrations for them as soon as you’re able to afford it.

I will discuss this in more details in next lesson.

In the next lesson....

In lesson 8, from Cynthia ( a startup lawyer), continues the lesson on how to use legal means to protect your ideas. You will the different legal structures you can use to protect your idea.

NEXT LESSON →
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