Sunday, January 15, 2012

Software Patents - Merely A Dog or Software Startup's Best Friend? - Part 2

A startup may consider it has arrived when a giant software company engages them about a possible acquisition or a joint venture. In that glow, the giant reviews the technology of the startup to determine how much competitive advantage can be obtained by the proposed acquisition or venture, and investigates the scope of the startup's intellectual property protection. During the diligence period, the startup is typically asked to progressively disclose its technology. 

During this period, some startups have assumed its non-disclosure agreement (NDA) will suffice to protect their interest, but giants may require using its own NDAs, which may have loopholes. One of the more brazen is a residual term which says something like this: "any information disclosed (by the startup) but not expressly designated in writing as confidential and retained in the memory of the recipient (giant) is not considered confidential and can be used by recipient for any purpose ...."

The NDAs may also say signing the NDA is not a license of either party's intellectual property, which likely works in favor of the giant who typically has a much larger portfolio of intellectual property. 

If the giant determines during diligence that it makes economic sense to code the software without buying the startup and has enough residual information, it may decide to enter the market without the startup's help so the acquisition or joint venture game is over. After all, the giant must decide in favor of its shareholders. 

So how does the startup disclose its products to a giant software company without creating a big competitor? Seek effective software patent(s) on your technology. In negotiations seek to delete the residual term from the NDA. However, if you don't have the bargaining power to delete the residual term, stay within the scope of what is designated confidential in the NDA and within the scope of your patent claims to reduce the risk.

Copyright © 2012 Robert Moll. All rights reserved.