Protecting Your App Idea
The dilemma facing creators of software Apps is the fear that if you tell others they may steal your idea. The problem is that if you don’t tell anyone you will not be able to raise money to develop it as who would invest in a mystery product that they know nothing about?
Like most startups you will find that you have to talk to a number of potential investors before one shows any interest. Each will want to read at the least your ‘Pitch Deck’ which gives away the core goals of what your idea has been designed to achieve and at some point, you will be asked for a detailed Business Plan which explains everything.
Let’s assume that you have been successful in raising funds and the next step is to develop the App. At this stage you are faced with the need to put protective measures in place to prevent the risk of both employed staff and subcontractors from copying your idea.
There are some steps you can take to put in place a degree of protection and they are explained below.
1. Non-Disclosure Agreement (NDA)
When you are committing to a start-up venture, you and your co-founders will understandably want to protect your “secret sauce”—the information that makes your product or service unique, whether it’s intellectual property, know-how, or trade secrets. Especially when the company is young and growing, your co-founding team will likely want to gain every protection you can to ensure that no one else can implement your idea before you do.
While it’s true that ideas are often less valuable than the execution founders put behind them, innovation is still at the heart of any successful start-up. A sensible first step toward protecting your ideas is to form a legal entity and turn this intellectual property into an asset of a company (rather than individuals). However, there are certain situations where using a non-disclosure agreement (NDA) can go a long way in helping to keep a company’s confidential information outside of public knowledge.
What is an NDA?
An NDA, or non-disclosure agreement, is a legally binding arrangement between two parties where one or both parties will classify confidential information and prohibit the other party from disclosing shared information. The party in the agreement that is disclosing confidential information is conveniently called the “Disclosing Party” and the party receiving confidential information is called the “Receiving Party.” Additionally, the NDA can either be a mutual or unilateral confidential obligation. A unilateral NDA is an agreement where the Receiving Party is the only party that is receiving confidential information from the Disclosing Party. A mutual NDA, in contrast, is an agreement where both the parties are a Receiving and Disclosing party regarding the exchange of confidential information.
The most crucial part of the agreement is making sure that it clearly describes all the information that the Receiving Party must keep confidential. The Receiving Party needs to know exactly what information they cannot disclose. Generally, the Disclosing Party will do this by creating a broad description of what they consider confidential information as well as by marking any shared materials conspicuously as “confidential.” Clearly marking materials is particularly useful when the NDA is between the company and a third party, like a contractor or partner. The markings help the Disclosing Party prove that the Receiving Party was aware that the disclosed material was confidential should a dispute arise in the future.
An NDA is only as good as the protection it offers your confidential information. In the case of a breach, there are several remedies to the harmed party, all of which must be reasonable to be able to enforce—for example, for an NDA to be enforceable between an employer and an employee, it must be reasonably linked to a legitimate business purpose. For an interesting review of the enforceability of NDAs. The two most common remedies are an injunction (a court order to stop disclosing confidential information) and monetary damages.
Which remedy a plaintiff seeks or a court grants depends on the nature of the breach and the harm caused to the affected party. In addition to the description of the information (and boilerplate language), the other key part of an NDA is the timeframe for the agreement. This informs the Receiving Party how long they must keep the covered information confidential. The term is a function of the negotiation between the two parties. The durations used for non-disclosure agreements are most commonly 2, 3, or 5 years, but they can also be indefinite.
2. Copyright and IP Ownership
It is always important to document your application with specific emphasis on:
- Functional descriptions
- Technical requirements
- Project scope
- User Interface (UI) designs
- User flow diagrams
- Site layout
- Source code
- Programming snippets
- App name
This phase is important as it can impact on ownership if a dispute arises between you and the developer over ownership of various aspects of the App and particularly if you decide to terminate the developer and engage another individual or company to carry on the work.
The software development falls under “literature” and unless explicitly assigned the “author” always retains ownership which even under a ‘develop and pay’ contract could be the developer, not you!! Always ensure that IP rights are explicitly assigned to you.
3. Employees and IP ownership
Always ensure that:
- All staff have IP assignment clauses in their contracts
- Your App development contract should assign all IP unconditionally after final payment
- IP includes the creative works of the software code and the images, icons etc
The IP rights related to 3rd party software used in the build cannot be assigned but would be included on a ‘commercial use’ basis only.
4. Contract and Sub-contract Developers
When you engage an App developer, they will often present you with a Contract for their services. This Contract should clearly explain the project and specify the scope and limitations relating to:
- Scope of work
- In-house resources used by the developer
- Budgets for each stage or component
- Timelines and milestones for payment
- Confidentiality clauses
- Post-sales support and associated costs
- Ownership of Data
- Technology employed in the build
- Process for variations
WIPO (The World Intellectual Property Organisation) has published a paper relating to Patents and Software developments.
“Modern society relies heavily on computer technology. Without software, a computer cannot operate. Software and hardware work in tandem in today’s information society. So, it is no wonder that intellectual property protection of software is crucial not only for the software industry, but for other businesses as well.
The intellectual property protection of computer software has been highly debated at the national and international level. For example, in the European Union (EU), a draft Directive on the Patentability of Computer-implemented Inventions has been discussed in order to harmonize the interpretation of the national patentability requirements for computer software-related inventions, including the business methods carried out via the computer. These discussions show divergent views among stakeholders in Europe. Furthermore, the Internet raises complex issues regarding the enforcement of patents, as patent protection is provided on a country-by-country basis, and the patent law of each country only takes effect within its own borders….”
Links to useful information published by WIPO can be found at https://www.wipo.int/sme/en/documents/software_patents_fulltext.html
- Do you really need a patent for your software-related invention? Think twice before preparing a patent application
- What do you wish to protect from your competitors? Identify the core part of your innovation
- Is your innovation patentable? Not all types of software-related innovation can enjoy patent protection
- Do you need to protect your innovation abroad? Patentability requirements are not always the same in each country
- Consult an intellectual property expert who is familiar with the relevant national law and practice
An App can be a very valuable item and its protection deserves a lot of consideration. Take the time to read as much as you can and seek legal advice in preparing contracts.