07 Jul How to Protect your Business Idea
Protecting your Business Idea
Entrepreneurs sometimes come up with business ideas that they think will change the world, and make them millions or billions of naira…but they guard this idea/product/business jealously worried that each person they speak to about it, is a potential threat to their future business/project.
One of the biggest fears of any entrepreneur is the fear that if they reveal too much about their idea or business or product to the wrong person, the idea might be ‘stolen’.
So we at LawPàdí decided to write this post with the hope it would help Nigerian entrepreneurs who are going through this dilemma.
To start with, and the most important thing you should know is that you cannot copyright or patent an idea. Not possible.
Copyright is a legal right that grants the creator of an original work exclusive right to its use and distribution, usually for a limited time. For it to be eligible for copyright protection, the work must be sufficiently original, and must be in a form which can be expressed.
Patent is an exclusive right granted for an invention, which is a product or a process that provides a new way of doing something, or offers a new technical solution to a problem.
So, for both copyright and patent, it’s not enough for you to have a ‘mere’ idea’. It must be expressed or must be an actual product/process, which has been invented.
That makes sense right?! Imagine if people could just think up stuff in their heads and claim IP rights over those ideas, when they have done absolutely nothing to execute the idea.
So your business idea/project etc. doesn’t meet the criteria for copyright protection or patent registration? So what?! Don’t get dejected! There are a number of other ways that smart entrepreneurs can use to protect their business ideas, and we will discuss a few of them below.
Leave a paper trail
Never underestimate the power of written correspondence. In any conversations you have with anyone about your idea…try to document it. It can be by emails, letters etc. Although this does not in itself protect your idea, what it does is that it provides evidence to back up a claim you might make in future.
It shows evidence of when you shared the idea with the person(s), on what terms you shared it (confidential/non-confidential), and is a powerful tool if you have to resort to the threat of legal action in future.
It should go without saying (but we will say it anyway), that your idea should be put in some sort of business proposal or document. Something that is tangible and you can use as a reference point for the birth of your idea. This is what should be sent (in addition to any other thing) to investors. If sent by paper post, then always get an acknowledged duplicate copy as proof.
Having a paper trail can protect you for instance in a situation where you bid for a project as a consultant, you put forth great ideas, and the company you bid to informs you that your proposal was not chosen…weeks or months later you come across a strikingly similar idea has been adopted by the company after turning down your proposal. Depending on the nature of your proposal, and the end product which the company launches, you could potentially get compensation from the company, and one of the key pieces of evidence which you would use to plead your case would be the duplicate acknowledged copy of your original proposal.
If your idea/business is not one that you are sharing with potential investors/partners by sending out proposals, for instance if most of your communication is over the phone or in meetings, then you should make a habit of recapping the discussion and sending via email to the person. After each and every call/conversation/meeting, recap what was discussed and document what the next steps will be in an email.
Now, if your idea is for a product that meets the criteria for patenting, and/or if you have a working prototype set up, then you should definitely speak to a lawyer and begin the process to apply for a patent before you initiate discussions with investors.
Generally, for it to be patentable, the invention –
- Must be new,
- Must have an inventive step that is not obvious to someone with knowledge and experience in the subject,
- Must be capable of being made or used in some kind of industry and not be, a scientific or mathematical discovery, theory or method, a literary, dramatic, musical or artistic work, a way of performing a mental act, playing a game or doing business, the presentation of information, or some computer programs, an animal or plant variety, a method of medical treatment or diagnosis,
- And must not be against public policy or morality.
Having a chat with a lawyer about your business idea/product will be immensely beneficial, especially if the lawyer is one who is an expert in intellectual property law. The lawyer should be able to identify any components of your product that meet the criteria for patenting, and therefore provide some form of protection for you.
The grant of a patent basically gives the inventor a temporary but exclusive monopoly over the commercial exploitation of that invention, with the right to exclude others from making, using, or selling the claimed invention in that country without their consent, for the duration of the patent. So, yeah if you can patent it, then by all means do that! A patent is your ticket to exclusive exploitation of your idea/product.
- Non-Disclosure Agreement (NDA)
An NDA is essential if you are going to be sharing your business idea on a professional level to investors, and even co-workers. The agreement basically commits them to confidentiality. An NDA can be a mutual agreement between two parties not to share information with third parties, or it can go one-way (since you’re sharing information about your idea with them).
Using an NDA is a bit of a tricky thing though; the issue with this is that most experienced investors do not really like the idea of signing an NDA for initial discussions, and the reason is pretty much down to the fact that they believe (through years of experience) that there is an abundance of supply of ideas, and it serves them little purpose to constrict themselves even before they hear about your idea, on the very slim chance that your idea is the 1 in a million idea which is completely unique and which no one has ever thought about! You can read more about investor’s approach to NDAs in this article here.
- Non-Compete Agreement (NCA)
Using a non-compete is also pretty tricky. It’s basically an agreement which you have your co-founders or key employees sign which prevents them from going to work for a competitor or starting their own similar business, within an established radius, and for a defined period of time.
An NCA is a great way to shield yourself from risk, however, as it limits the future employment prospects of the person who signs it, 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.
Most times, an NCA is not really a stand-alone agreement, but is included as a clause in an Agreement, e.g a Founders Agreement or an Employment Agreement.
- Work-for-hire Agreement
If you hire someone (a consultant or freelancer) to help fine-tune your product or service, make sure to establish that you own any and all intellectual property to the improvements made to the idea. Anything they come up with, you own.
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.”
The above clauses might seem unfair to the freelancer/consultant helping to develop the idea, but to be frank, this post is about protecting the idea of the entrepreneur and not about being considerate to all parties. That aside, the entrepreneur should allow the consultant to retain a limited right to advertise the work as theirs (as the lifeblood of freelancers and consultants is showing what they have done in the past).
This probably goes without saying, but before you open up about your business and/or ideas to an investor/partner, it might be beneficial if you do some background research on the person/company.
This should be a necessity from a business perspective (as you want to get a feel for them and how to approach the discussions) and also from a legal perspective – as you want to know if they are who they say they are, and more importantly if they have had any untoward dealings in the past.
The quickest and easiest way would be to do an Internet search of the investors, check professional and social networks etc. A more involved and probably more expensive route would be to hire the services of a lawyer. This should only be done if you are in advanced negotiations and it is effectively part of a due diligence you would be conducting on the company (as they probably would be doing one on you as well). A lawyer would do a search at the Corporate Affairs Commission (if a Nigerian based company is your potential investor) to get details about the shareholding, directors etc. and maybe even a search in the court records to find out if there are any pending court cases which the company or its directors might be involved in.
If you unearth anything untoward, then it might be a trigger for you to be a bit more cautious in your dealings with them.
To assist entrepreneurs and innovators, we have decided to provide a template Non-Disclosure Agreement for free which can be amended and used for your idea/business/project. As you are aware NDAs are not only useful for discussion with investors, they are also useful when speaking with other companies with the view of potentially collaborating with them.
Therefore in that scenario the NDA would be for the benefit of both parties (a Mutual NDA). For the purposes of this post however, our template is of a Unilateral NDA. You may access the free download here.
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