Here You Come Again, With A Pitch Book Looking Better Than It Has A Right To…

Another day, another pitch.  What are your red flags to pitch out the pitch book?   Old technology?   Unlikely team?  Funky numbers?  Five Google pages of competition?  What about that promising little company we all have seen x times and to the nth degree:  the one with encouraging numbers and a niche–and no IP?   My favorite.  The pitch always waffles on IP.   A little arm waving in the direction of a patent, a nod to copyright, and the founders will refer breathlessly to trade secrets.  Right.  Look around for an expired patent, direct competitors first to market, off the shelf equipment, and outsourced development.  Unless the company has paid attention and put effort into tying up the IP in a neat package, pass, move on.

Most inventive software developers want to patent their work, whether it is worth patenting or not. They do not want the exposure of copyright registration. Where the company whispers “trade secrets”, I have found on further questioning that the company has borrowed freely and widely or is knowingly re-purposing someone else’s work—or has hired others to do the work without proper agreements in place and there is a dispute as to who owns the code. Examine who owns the code by agreement, whether the company has infringing code or open source code embedded in its products, and, indeed whether the developer has “freedom to operate”, that is, does not infringe someone else’s patent. Question carefully whether the developer has any IP to protect.

Start strategically with the outside developers, as the analysis is cheaper. Who owns the code? What agreements does your software company have in place with its outside developers? This is not a question of NDA’s alone. Often such a company actually knows or suspects that it does not have the proper agreements in place and tries to avoid the real or potential ownership dispute by ignoring it, neither filing a patent application nor registering the copyright, (the less preferred route among software developers).

Use code sniffing to determine whether the software infringes someone else’s patents or copyright. A major problem is that programmers freely participate in open source and other communities on their own time. They go home at night, log in, and chat, seeking solutions to coding problems at work. They exchange code, co-author code solutions, and otherwise identify code that they then take back to work and embed in their employer’s software. The flow goes in the other direction as well. They share out their own code, their employer’s code.

Most expensive but essential is the Freedom to Operate opinion. Use a patent lawyer with extensive software experience who will do a thorough patent search, order any implicated patent, complete with wrapper, and thoroughly examine whether your company’s products infringe one or more of such patents.

Protection of trade secrets is extremely difficult, particularly in the case of software. Code, data, information flow freely. Open collaboration corrupts the process too easily. People move around, company to company, place to place, with thumb drives, personal email accounts, and BYOD. Secrecy is very difficult to maintain when products flow well beyond what Homeland Security advisers call “guns, gates, and guards.”

Copyright 2014  S. Caroline Schroder.  All Rights Reserved.