United States: "‘Say It Ain't So, Bro!'" (Episode 14)

Previously we've discussed Hooli's reverse engineering of Pied Piper's technology and the threatened lawsuit for ownership of the technology.  In Episode 14, Pied Piper faces a new threat:  Endframe, a Pied Piper competitor, has also stolen Pied Piper's technology, in collusion with VC firm Branscomb Ventures.  This started back in Episode 10, when the Pied Piper team pitched to Branscomb and were "brain raped."  The team shared the intimate, technical details of Pied Piper's middle-out technology before realizing what was happening.  Branscomb/Endframe then used the information Pied Piper revealed to create their competing product.  But was there anything Pied Piper could have done to protect itself?

Making Branscomb sign a non-disclosure agreement (NDA) before the pitch meeting might sound like a good idea, but it wouldn't have worked.  The simple fact is that VC firms don't sign NDAs for pitch meetings or materials.  Rather, the expectation is that startups will exercise discretion in their meetings with VCs, and VCs will generally exercise discretion too – they get how this works.  Therefore, Pied Piper should not have revealed the nitty-gritty of its middle-out technology to Branscomb.  Instead, it should have focused on explaining the concept, technology, and business model (how Pied Piper is going to compress the world!) without revealing (or white-boarding) its secret sauce.

Mainly though, what Pied Piper has been missing all along is an IP protection plan—a must for a technology-focused startup like Pied Piper.  What should a plan include?  For not-yet-patented technology and non-patentable trade secrets (valuable, confidential information that isn't a patentable invention, e.g., Pied Piper's source code), Pied Piper should plan and take efforts that are "reasonable under the circumstances" to maintain secrecy.  "Reasonable" efforts almost always include limiting access to those who need to know the information—for example, planning what to say and what not say in pitch meetings—requiring employees and business partners to maintain confidentiality, using passwords, encryption, and similar common sense steps.  Although startups may not want to get "corporate," when technology is in play, it's a must.

For its technology/inventions, Pied Piper should develop a roadmap identifying its patentable technologies and prioritizing how (and when) to protect them.  For example, Pied Piper really should have sought patent protection long before now, and certainly before disclosing their technology at pitch meetings, through outside beta testing, or by launching the Pied Piper product/service.  The break between Seasons 1 and 2 would have been a perfect time to seek a patent on their current, TechCrunch technology, and this should have been on their roadmap.

Why file so "soon"?  For one thing, the United States has a first-inventor-to-file-system, meaning that the first person to file a patent application is presumed to be the inventor and entitled to the patent.  For example, even though Endframe stole the technology from Pied Piper, if Endframe files for a patent first, there will be a strong presumption that Endframe is the inventor and should get the patent.  To defeat Endframe's presumed patent rights, Pied Piper would have to prove that Endframe didn't independently develop the technology but instead stole it from Pied Piper, or, at minimum, that Pied Piper had publicly "disclosed" the technology first.  In other words, if Pied Piper discloses its technology before filing for a patent, dishonorable competitors like Endframe or Hooli could beat Pied Piper to the patent office.  Then Pied Piper will be stuck waging an expensive and uncertain legal battle just to try and get patents on its own technology.

Another risk is that Pied Piper might not get a patent if its technology has been publicly "disclosed" before Pied Piper files for protection.  Does this mean Richard and Pied Piper could have lost their patent rights already?  Maybe, maybe not.  In the U.S., there is an exception to the harsh disclosure rule: if the inventor is the person who directly or indirectly made the "disclosure," then the inventor may have a 1-year grace period in which to file a patent application.  However, as with many legal rules, there are loopholes and exceptions to the exception, meaning that there are circumstances in which the 1-year window will disappear.  I will discuss this more in another post, including which of Pied Piper's activities so far could count as public "disclosures."  For now the lesson is that if Pied Piper had filed for protection before doing anything that might count as a "disclosure," then they wouldn't have to worry about 1-year windows or exceptions to exceptions.

On top of that, other countries don't have any 1-year window.  If Pied Piper publicly "discloses" the technology before seeking patent protection, Pied Piper gives up the right to obtain patents in places like the Europe, Japan and China.  One day soon, Pied Piper will have foreign customers and will want those patents too!

So what would Richard and Pied Piper have gained if they had implemented a better IP protection plan?  First, they would have avoided saying too much in the pitch to Branscomb!  Second, they would have filed a patent application before the pitch, and wouldn't have to worry about Endframe trying to beat Pied Piper to the patent office.  Third, they wouldn't have to worry about disappearing 1-year windows in which to file, or losing their foreign patent rights.  Finally, notifying Endframe/Branscomb that the technology is "patent pending" might have made the would-be thieves think twice before stealing the technology in the first place.  Although Jared blogs that Pied Piper might take legal action against Endframe, this is really an attempt to put the genie back in the bottle.  It's difficult to imagine litigation as a practical or affordable option for Pied Piper.  Stay tuned for the next post as the legal war continues to develop.

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