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.
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.