The risk here isn't that your former employer actually has a right to your company under the scenarios you listed. It's that if they have the resources, they can bleed you in litigation before your case is ever adjudicated. It's like a form of patent trolling, they're using the process to achieve an end they'd never get in adjudication.
The other alternative, in the current case, is to ask the court for sanctions.
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As a founder who has taken on a legal threat from a big-corp before, know that bigger companies are in the habit of being bullies like this, because they get away with it far more than they should, and they might not even realize how stupid it is. Big-corp's lawyers are simply incentivized to rack up billable hours, legit or not.
But when you can make it clear to big-corp's strategic decision makers that there's far less upside than they expect (including that they have practically zero chance of winning anything), and far more downside (including that they will really look like idiots in front of their customers, their employees, future strategic partners, etc), big-corp usually calls off its lawyers and moves on to the next person on their hit-list. They're usually rational enough not to pursue negative-ROI activities for very long simply for vengeance. If the threat of going public isn't enough to make them back down, it's ugly, but you've got to follow through.
Typically lawyers hate posts like this because it's public record now what happened and if any of this isn't true and provable 100% it can hurt them, a lot.
There are some eDiscovery consulting companies like http://www.dcdatacorp.com that go out and do forensic capture for law firms before it ever gets to a courtroom. They try and determine access to digital systems best as they can on behalf of the firms that hire them.
Don't build a business on quicksand. Get a lawyer involved in formation to ensure your IP is clean and usable for your new venture. If in doubt. Scrap it all.
We did get a lawyer involved when we started Shred Video, and are 100% sure our IP is clean and usable.
It will take probably two years for the case to get fully adjudicated, and the legal recourse for preventing frivolous lawsuits like this is insufficient. Starting a startup is plenty hard enough without this kind of distraction, it's in all of our interest to dissuade larger companies from harassing startups in this way.
During which time many prospective investors, partners and customers won't want to touch you with a 10 foot pole.
> ...and the legal recourse for preventing frivolous lawsuits like this is insufficient.
To be honest, this doesn't look like a frivolous lawsuit, even if this goes to trial and is adjudicated in your favor.
Your post indicates that you and your co-founder quit your jobs at Smule to start Shred. In your post, you detail the differences between some of the technology behind Smule's products and your own, but it is clear that Smule and Shred are in the same general space as far as technology is concerned.
The intellectual property assignment agreements most employees sign cover inventions, processes, discoveries, etc. that are made or conceived of during their terms of employment. They often contain language referring to "the present or reasonably anticipated business" of the employer.
While none of this means you can't leave an employer to start a business in the same space, matters like this can be incredibly messy. If you believe that your defense will be successful because you can prove you didn't steal code outright, you are being incredibly naive. It's not that simple.
Are you insinuating that 2 employees quitting a company together and starting a company in the same "general space" is reasonable grounds for a lawsuit?
> If you believe that your defense will be successful because you can prove you didn't steal code outright, you are being incredibly naive. It's not that simple.
And that's to the shame of our legal system, and to the detriment of our country's economy.
If a former employer has reason to believe that the employees misappropriated intellectual property or otherwise violated the terms of their employment agreements in doing so, it has every right to seek to enforce its agreements and protect its interests.
Like it or not, when employees leave to start a company in the same general space, claims of misappropriation are more likely.
> And that's to the shame of our legal system, and to the detriment of our country's economy.
How? If a source code comparison will not be dispositive of Smule's claims against Shred's co-founders, why would a court rely on a source code comparison?
From what I can see, nobody has produced the actual filings in this case, so we don't know the exact claims, but other comments indicate that Smule isn't just claiming Shred's co-founders stole source code.
Please recognize that assignment is likely an issue because Smule will almost certainly try to claim the opposite of what you're claiming. It doesn't mean that they will be able to prove their claims, but you should at least be aware of the fact that there are two sides to every legal dispute and both parties have the opportunity to make their case.
If this isn't matter isn't settled, the legal process provides the means to sort it all out and you'll have the opportunity to evaluate the evidence supporting Smule's claims as part of the discovery process.
If they even make it through the discovery process without going bankrupt, which is the explicit, admitted goal of their opponent.
No, it isn't. According to Business Insider, this is what was stated:
I'm fairly confident we will figure something out eventually, and this won't be a long-term problem. But I think they've got to face the music here. And we're going to have to figure that out unfortunately with a bunch of lawyers.
And here's the sad truth. You compare a 100-person company with 10, 30, 40 million dollars in the bank to a two-person startup. If it goes to litigation, if we're wrong, we'll win.
Right? We'll win. We'll put a giant law firm on it and we'll do all of the discovery and we'll do all the depositions and we'll win. And if we're right, we'll still win.
So it's not a great scenario. If you fork off a startup and there's IP overlap, it's just a big mess.
The Smule CEO doesn't at all suggest he's trying to put Shred out of business. Instead, he:
1. Seems to imply that a settlement is possible.
2. Laments the fact that this matter required legal action and that said legal action will put Shred's co-founders in a disadvantaged situation.
3. Acknowledges that this matter is the result of the fact that there seems to be some overlap between the kind of technology Smule creates and the kind of technology Shred creates.
Until Smule's claims are known in detail, it's premature to assume that Smule's action has no merit. Smule could be the good guy, or the bad guy. But lots of people here can't help but pick David over Goliath when very few meaningful facts are known.
Smule has claimed we violated non-solicitation provision in our contract by recruiting each other to start a startup; that we appropriated Smule's code or methods to build Shred Video (though they don't make any specific trade secret claims); That Mark is guilty of fraud in his consulting relationship w/ Smule's engineers (this is detailed our post); and We converted Smule's proprietary information into Shred Video (far as I understand, conversion is a fancy word for "stealing").
The "non-solicitation" claim is laughable, especially in California. The fraud claim is fraudulent itself, as the email record clearly shows Smule itself asked for Mark's help, and he was wholly transparent in the way he provided that help. Everything else comes down to whether we used Smule's proprietary code or methods.
When Smith says "I'm fairly confident we will figure something out eventually...unfortunately...with a bunch of lawyers," seems a reasonable interpretation that "a bunch of lawyers" is code for legal threats, and "figure something out" is code for us paying him (in equity or otherwise) to withdraw the legal threat.
I don't even think you realize what you're saying at this point.
I empathize with you. I really do. For what it's worth, years ago, I had to fight to regain control of a company I had started that was "stolen" by a former business partner. I was a twenty-something with very little money in the bank and my counsel was a local attorney. I sued a multi-millionaire represented by one of the top 5 law firms in the world. I was able to get what I wanted largely because my attorney gave me good advice and I listened to it.
I'm sure this is an emotional time for you but I would strongly recommend that you retain an attorney you trust before you do or write anything else.
It would be helpful if you could link to the filing, for those of us interested to read it. I regularly read them when the case is interesting (e.g., Oracle v. Google). If the documents are public domain (with no public link), then presumably you could host them for sharing as well.
You should be paranoid, but just checking your email isn't a big deal unless you start co-mingling secret information.
But under CA trade secret law, you can commit trade secret misappropriation without ever taking a document or file. Mind trade secrets are still trade secrets.
If your employer creates a new algorithm that nobody outside the company knows about. You can't recreate it from memory in your own company. As you can imagine, this gets into grays areas real quick. It's impossible to neatly distinguish between skills you learned at work and trade secrets you learned.
I'll leave the business advice to the businessmen, but I've seen several investment/buyouts killed because during an IP review it was discovered that the startup was in the same space as a previous employer.
Also, in this day and age of using services like Github for personal projects but having access to other repos, etc., using things like 1Password for work and personal things, how has the discovery process worked with everything?
I'm really interested in knowing to what degree someone should be paranoid. Are you potentially risking your entire business because you once checked your work webmail from a personal computer or checked a personal email account from a work phone?