By Boluwatife Sanya
The intended investor has refused to respond to messages nor pick my call since I raised the issue of executing a non-disclosure agreement before pitching my idea. Is it safe to share it regardless?
The above is a summary of the question asked by a client during a virtual consultation. He had a business idea but did not have the fund to execute it. His friend had introduced him to another older friend who is usually interested in funding tech start-ups but wanted to know what the idea was all about. My client had read somewhere that before he discloses his idea to anyone, that person must execute a non-disclosure agreement so that the person he pitched the idea to will neither be able to disclose to someone else or set up an entity that will carry out the idea and compete with him.
The professional truth is that some investors do not love to execute a non-disclosure agreement. Bearing in mind that the agreement must be executed before pitching the idea, the investors argue that they are not sure if it is an idea that is already being executed by another company they have invested in hence, the agreement will not be needed. They go further to ask that the relationship be based purely on human relation and trust. However, I have observed that angel investors are often open to execute an NDA. I interrogated one recently and found out that this is because they look forward to owning equity in the company and more importantly, are often close relatives. (NB: An angel investor is an individual who provides funding for start-ups in exchange for equity in the company).
In this piece, we will explore several other ways to protect the supposed idea as opposed to insisting that the proposed investor executes a non-disclosure agreement.
Quickly, are business ideas protectable?
Your idea simpliciter is not protectable but the process, product or software that makes the idea a reality MAY be protectable. Yes, I purposely used the uppercase for the word may because not all processes and or software that makes the idea a reality is protectable.
In other words, if your idea becomes a product or a process then it may be protected. I recall many years ago, I observed several professionals (especially women) close from work pretty late and sometimes still have to visit the market or even those that do their shopping during the weekend do not wish to visit the market. Hence, I thought it will be innovative to have the market brought to their doorstep. I coined the word “ygomarket”. I did not pursue this for personal reasons but I told a couple about it. If a software had been designed for this idea, then I can own the rights to the software and not that idea itself.
There are principally five ways to use intellectual property law to protect your idea before pitching it. They are;
Patent is more like a social contract wherein an inventor approaches the government to protect his invention so that another person will not commercially exploit it, the government grants the inventor protection for a specific period of time (often twenty years) while the inventor in exchange for that, discloses the step by step procedure of arriving at his invention so much so that anyone skilled in the industry of such invention can independently recreate the invention with the disclosure as a guide.
Patent protects either the product or a process. The question that comes to mind is; are all processes or products patentable? NO
For a product or process to be patentable, it must satisfy three requirements. First, the product or process must be new or novel. This means that the process or product has never been in existence (in the prior art). Alternatively, the product or process is a substantial development of what has been in existence.
Second, it must be an inventive step. This requirement is also referred to as non-obviousness. It simply means that the product or process is not obvious to a person ordinarily skilled in the industry of the product or process. It should be noted that it is only when the product or process is new that we could consider the inventive step requirement.
Third, the product or process must be industrially applicable. This means that the product or process must not be abstract or theoretical, it must be useful and possess the ability of being applied to a practical purpose.
- Utility model
This is referred to as lesser patents. Patent and utility model are similar but differ in two respects. First, the novelty or newness requirement is necessary but the requirements of inventive step and industrial applicability are not as stringent as that of patent. Second, the years of protection are usually shorter than patents.
Note that utility model is not provided for in Nigeria but it is pertinent to observe that the Patent and Design (Repeal and Re-enactment) bill, 2021 which is pending before the National Assembly provides for utility model.
- Trade secret
A trade secret is any information (either process or practice or documents) that is used for the running of a business and not known to competitors.
There are three yardsticks for an information to qualify as a trade secret. They are;
- The information must be commercially valuable.
- It must be known to only a limited group of persons.
- Reasonable steps have been taken by the owner of the trade secret to keep the information secret either by confidentiality agreement amongst business partners or contract of employment.
A prominent example of the use of trade secret system is the formula of Cocacola and their products. The procedures for protecting the formula for Coca‐Cola (a.k.a. “Merchandise 7X”), according to an affidavit deposed to by a senior vice‐president and general counsel for Coca‐ Cola in a court case, are as follows: The written version of the secret formula is kept in a security vault at the Trust Company Bank in Atlanta, and that vault can only be opened by a resolution from the Company’s Board of Directors. It is the Company’s policy that only two persons in the Company shall know the formula at any one time, and that only those persons may oversee the actual preparation of Merchandise 7X. The Company refuses to allow the identity of those persons to be disclosed or to allow those persons to fly on the same airplane at the same time. The same precautions are taken regarding the secret formulae of the company’s other cola drinks: diet Coke, caffeine‐free diet Coke, TAB, caffeine‐free TAB and caffeine‐free Coca‐Cola.
The outcome of an idea could be a literary work, musical, artistic or cinematography. Computer programs are usually referred to as literary works.
For a work to be copyrightable, all that is required is that the work be original and fixed in a tangible medium.
- Trademark: a business idea could transform into a product or service which will necessitate a trademark registration. In other words, a business idea may be so tied to a brand and not using that brand is likely going to defeat the business idea. Hence, a trademark may be necessary. This is in addition to any of the above.
A mark can be trademarked when it is distinctive.
What about Non-disclosure?
I agree that a non-disclosure agreement should be executed by investors but this is usually not practicable all the time. Besides, an NDA is not full-proof as the investor may inform someone that may never be linked to them.
What should you do when you have an idea?
First, be mute about it. I understand the urge but it is necessary to be mute.
Second, research on possible ways to convert the idea to a product or process.
Third, discuss with an intellectual property expert on possible ways of protection.
Fourth, ensure it is protected
Fifth, pitch to the world!
Yes, ideas rule the world but only those that are converted into products or process reap the fruits of the idea.
LL.B, B.L, Copyright (Harvard), ACIArb (U.K), MIP (WIPO, ARIPO, A.U)
Boluwatife is the Managing Partner at Paddle Solicitors. Paddle Solicitors is a full-service litigation, commercial and dispute resolution law office. Hotline: +2348147439799.
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