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Author Topic: Issue in relation to Conflict of Interests  (Read 1319 times)

Lillycus

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Issue in relation to Conflict of Interests
« on: 04-04-17 at 08:45 am »

Hello there,

I wonder if anyone could please advise in relation to our situation.

We're a skincare start-up and recently began holding discussions with a formulation chemist (who works at a major skincare company) with a view to developing a formula for us, in exchange for equity in our start-up.

We started to realise from the first meeting that there was a potential conflict of interests (well really an actual conflict of interests) in recruiting this person. It's sort of obvious with hindsight but we're quite new to all this.

We have been advised that large companies who have a member of staff who is involved in start-up equity without their knowledge (or with potentially) could in the future claim this employee's stake in the company. We obviously therefore have to be as transparent as possible to avoid any such claims (in addition the candidate's work would end up being for nothing).

We have therefore asked them to make this disclosure to their employer, and naturally the employer wants to know more about the exact nature of their collaboration with us (which is understandable).

My concern at this point in time is that, even though we have asked the potential collaborator to sign an NDA, I don't know how much information we would want to disclose about our proposed products to a major skincare brand, which could potentially take our idea and have the means to roll it out very quickly. Even though are brands are trademarked, we'd need the means to bring the case to court.

I am wondering if we should simply stop negotiations right at this point, on the basis that it feels as though we are entering a very grey area of IP law in terms of risk and disclosure. In addition we have also been advised that sometimes when disclosing IP information to large companies, they can just say that they already had the idea. Obviously we wouldn't allow our exact IP to be outlined but we are just feeling that this situation is becoming very risky and don't feel too comfortable about proceeding at this stage.

We are starting to think that it might be favourable to look for someone with this experience who isn't already employed by a major player in the industry or simply just to pay a formulator to do this for us. Although it will be fairly expensive and we don't really have the funds, it could well end up cheaper in the long run. I suppose that the other aspect to consider is that the potential collaborator seems to be very creative and ambitious. Therefore we don't want to make a decision not to work with this person without good reason.

I'd be grateful for any thoughts you have on this situation and potential risks we are running. Are we being over-cautious or should we draw these negotiations to a close (on the basis of getting into difficult territory)?

Many thanks.

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artchain

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Re: Issue in relation to Conflict of Interests
« Reply #1 on: 04-04-17 at 02:38 pm »

We have been advised that large companies who have a member of staff who is involved in start-up equity without their knowledge (or with potentially) could in the future claim this employee's stake in the company. We obviously therefore have to be as transparent as possible to avoid any such claims (in addition the candidate's work would end up being for nothing).

It's worse than that.  The other company could claim that your products is based on stolen IP, and sue your company.  (Google is currently suing Uber because they claim ex-employees used Google's IP.)

In Silicon Valley, it's standard practice to quit your company BEFORE working for a startup in a related field.  And even this isn't a guarantee of protection. 

I know that a venture capitalist would see this as a HUGE red flag.  I've seen funding deals fall through when situations like this were disclosed.

If you decide to move ahead with this guy, you definitely should hire an IP attorney with experience negotiating IP agreements that protect both parties.  But in general, I think you should walk away from this deal  and find someone else. 

MYK

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Re: Issue in relation to Conflict of Interests
« Reply #2 on: 04-05-17 at 04:06 am »

In Silicon Valley, it's standard practice to quit your company BEFORE working for a startup in a related field.  And even this isn't a guarantee of protection.
Also, California at least used to have little or no trade secret protection, which is why they could get away with that.  Nowadays there is a federal trade secret law, and the state's laws would also apply.
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"The life of a patent solicitor has always been a hard one."  Judge Giles Rich, Application of Ruschig, 379 F.2d 990.

Disclaimer: not only am I not a lawyer, I'm not your lawyer.  Therefore, this does not constitute legal advice.
 



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