New product innovations forged by startups and small businesses are being replicated by corporations every day in the US and all over the world. Here’s how it usually plays out. A large company stumbles across an innovation that would work well for their business. Sometimes, they’ll sniff around the small business owner and show some interest in what they’re doing, then turn around and launch a strikingly similar product into the market without any hint of concern. And it’s happening even when confidentiality agreements, design registrations and patents are in place.
Frustrated small business owners explain that even the most correct legal structures in the early days aren’t protecting them from bigger companies with deeper pockets from replicating their idea. Without spending a small fortune to spend on legal fees, they are powerless to stop it from happening.
Here is a good example how large companies can steal your idea, in this case Walmart:
Startups and retailers alike are chasing a solution to the food waste problem, trying everything from “ugly” produce to smaller produce cases. Zest Labs says about a third of the nation’s post-harvest fresh food is wasted.
According to ReFed, the United States wastes about 63 million tons of food each year, with 40% of that in grocery stores and restaurants. ReFed estimates that reducing fruit and vegetable waste would represent
an $18.2 billion opportunity for retailers.
Zest Labs demonstrated its Zest Fresh cold-chain management technology to Walmart executives beginning in 2014 — and entered into a confidentiality agreement on March 5, 2014. The retailer eventually lost interest, but then earlier this year released a solution called Eden that Zest claims “looks, sounds, and functions” just like its technology. Walmart claimed it developed Eden through a six-month hackathon involving its own engineers. “In reality, Walmart used its years of unfettered access to plaintiffs’ trade secrets, proprietary information, and know-how to steal the Zest Fresh technology and misappropriate it for Walmart’s own benefit,” the complaint reads. A Walmart spokesman told Food Dive it respects the rights of intellectual property holders and will respond appropriately.
Zest Labs has been working with several grocery companies on the food waste problems. Hy-Vee has been testing Zest Labs’ technology since December 2017, while Costco announced a partnership with Zest Labs just last week.
Here are some tips:
Have a lawyer go over your idea to determine which aspects of it can be copyrighted, trademarked or patented.
Business owners must never cut corners when it comes to legal protections or shy away from the cost of IP protection. Patent rights, trademarks and design registrations should also all be considered. Yes, there are costs associated with IP protection, but one hopes that the business will receive significant financial gains as a result of going through the process given they’ll have a strong and protectable monopoly on the market.
Businesses disclosing information under a confidentiality agreement should keep very detailed records of when and what they disclosed to others, and preferably have these details witnessed by a third party.
Ideas are cheap; everyone has great ideas. Execution is everything. If you have a unique idea, can execute it and do it fast, you may have some staying power over the big guys. Startups are a speed play, generally they react fast. Small companies usually have 18 to 24 months before they will see even the beginning of competition. The way you become valuable is by literally coming out of nowhere and rushing the marketplace before anybody else knows what happened (We always ask our startup founders to stay under the radar, or as we say, run deep & run silent).
Invest in ideas that are difficult to copy or has a really special magic sauce that you only can tweak. On the strategic level, all the legal protection in the world isn’t going to be particularly helpful if your idea is easy to reverse engineer. To be clear, pretty much anything can be reverse engineered on some level: the focus isn’t on ideas that can never be copied, but on ideas that are hard to copy.
And don’t forget, sometimes the danger comes from within. It is also especially important to get anybody who works with you under strict, carefully written non-disclosure and non-compete agreements. These ensure that your employees and co-founders can’t walk away with or sell any proprietary knowledge that could give away your competitive advantages.
All is not lost for the little guys, however. Startups can fight back against the big guys and win. For example, Facebook not long ago essentially copied and integrated tiny OfferUp’s app and called it Marketplace. As of last September, OfferUp is valued at more than one billion dollars, making it Seattle’s only unicorn. What’s happened? OfferUp developed a clear value proposition that set its innovation apart from just being a feature on a platform. Connecting buyers and sellers in a safe, secure, curated space is all it does, in some sense it’s a pure play.
And finally; Don’t Let Fears of Idea Theft Prevent You From Acting. Before moving on, let’s make one thing clear. Fear itself is a much bigger danger than the possibility of theft. While the horror stories are genuine cause for concern, the crippling fear of sharing your idea is far more dangerous.
If you want to know more about how to really protect your ideas give us a try. Our collaborative ecosystem has some of the most talented legal advisors and teams in their respective fields of expertise and knowledgeable in working with startups and small firms. Practical, cost efficient intellectual property solutions are what we aim for. Send us an email to firstname.lastname@example.org to set up a one hour free assessment meeting with no commitments what so ever.