Seeking Someone to License the Heart of Your Company? 55
dcdukeu asks: "We're a small software company that is about to enter into an 'Acceptance Period' with a much larger company for the purpose of determining if they want to license the source code and intellectual property of our main product. This involves giving them our source code, whitepapers, and providing the technology transfer of how things work. Once they receive this they get 45 days to determine if they want to move forward and incur royalties plus payment minimums. What I want to know is if other people have dealt with this before and what would they recommend in terms of how we can turn our information over to them in a time sensitive way (e.g. after 45 days the documents they receive cannot be viewed any more). We are basically giving up everything we have and training them before they say 'yes' or 'no' as to whether or not they are going to move forward. Thoughts?" Unless there are numerous protections already in place to prevent the larger company from running with the information gleaned from this transfer, this so does not sound like a good idea. If you've been in a similar situation before, what suggestions would you have for dcdukeu?
If they're good, nothing (Score:3, Insightful)
I think the best thing that you can do here is to get them to sign some legal document saying they won't touch your stuff after the expiry date. No matter how hard you try, you won't be able to stop them copying things (screenshots work, even if nothing else does), but if you have a contract it might make them think twice.
Get Patent Protection, Now! (Score:3, Interesting)
Re:Get Patent Protection, Now! (Score:2)
There is very little the small fry can do. Thats why we call them small frys.
Your uncles mistake was not an expensive one (unless he paid for the court battles, but that was his perogative to seek repayment.) He didn't lose anything in losing the IP royalties.
One last question
Re:Get Patent Protection, Now! (Score:3, Insightful)
That post, if it is true is the reason patent law exists.
Re:Get Patent Protection, Now! (Score:2)
We've see the 'right' for copyright holders to make a living off a creation go from 20 years to 70 years after their death (ensuring that their kids needn't have a creative bone in their body).
The word 'right' is thrown around like so much water these days
Same with patents. Your 'right' used to be 5 years. Now it's 20. Up until patent laws, it wasn't a 'right', and yet, shit still got invented.
Start thinking about what you call 'rights', and why you consider them 'rights'. Who taught you that they were 'rights'? I think we all have rights to water, food, a place to live, and freedom of speech. I do not consider getting wealthy off inventions a 'natural right'. You may, but we certainly have no way to epirically proove what is a natural right, either way.
Re:Get Patent Protection, Now! (Score:2)
Yet those same laws are there to benefit "the little guy". A case in point would be the father of my roommate in college. He developed a process that lowers the cost of producing plastic -- a process that has been licensed to GE for about 4 years now.
You should be advocating reform of patent & copyright law, not abolition. The ability to profit off of your inventions is a valid right and should be protected. It is not a natural right, but a right granted to the people by the governments of all civilized countries.
Who taught you that we all have rights to free speech and a place to live? For thousands of years nomadic hunters roamed the planet in search of game to kill & eat -- where was the roof over their heads? Why is free speech a natural right? Billions of people live in oppressive societies where they lack this right. Most of them are doing just fine.
Try to keep in mind that nobody works for free. If you don't allow people to profit, they'll direct their energies elsewhere.
Re:Get Patent Protection, Now! (Score:2)
However, I disagree with nobody working for free. Its simply, totally, untrue. Lots of people work for free, and the problem is, we've come to believe that work you do for free isn't 'work' at all (making music, helping the needy, joining the army, whatever). So why is that? Well, it's pretty simple: we consider anything produced under the guise of unpaid work as intrinsicly worthless, as this system would fall apart if people were willing to write the Top 40 for free (or probably more accurately, consumers started to find music they like that was being made for free). Watch advertising, culture, media
Talk to lawyers, (Score:1)
This is one of those situations where you NEED expert advice you can rely on - and potentially sue if they f**k it up.
Alex
No fscking way. (Score:5, Insightful)
I can see you're in a bad place - really wanting to make this deal happen, but you have to look at the risks. Three suggestions:
1, Turn the deal on its' head, get them to bring their software, source, docco and people to your place. Work to integrate the two and see if the execs like the end result.
2, Get them to define what it is they are hoping to achieve and have a third party consultancy assess your code to see if it fits the requirements.
3, Stay with the original gig but get them to sign a really viscious NDA preventing them from producing some derivative work or entering into the same market for 'n' years. They probably won't go for it, but hey.
Good luck, sounds like exciting times.
Dave
Re:No fscking way. (Score:2)
The larger company may be legitimate, but expect that they will 'suddenly' develop your product in a few months. They probably have prototypes, can't get over a few issues, and if they just had some inspiration -- like your source code -- they would figure it out.
I'd consider the strong possibility that they are just hunting around and this is a cheap way to do R&D.
Now, having said that, the truely slimy people may not be the ones you're dealing with. The execs or PMs somewhere else in the larger company may be waiting on the reports from the innocent folks -- who really don't have a clue that they are a pawn in this game -- who have been asked to talk to your group directly. Still, I'd expect some to be suspect.
Re:No fscking way. (Score:2)
This is the only way to go. If they won't agree to a third party assessment, then they're out to screw you. There are lots of companies out there that do this kind of work, so you shouldn't have trouble finding one.
Sign an Agreement (Score:2, Insightful)
Re:Sign an Agreement (Score:2)
In banking, there is the concept of the "data room". Before M&A activity, the target would place all possibly relevant data to the merger (accounts, contracts, confirmations of regulatory compliance, etc) in a room. The bankers advising the buyer are allowed unlimited access to the room for a period of days (or weeks). You can look at anything, you can take notes, but you cannot photocopy and you cannot take anything outside the room.
If later on there is an issue, and it was documented in the data room, and the bankers didn't spot it, then any problems are for the buyer and the bank to resolve - the bank may well be in deep trouble for negligence. If the problem is detected in the data room, the bankers will advise the buyer to lower the price (for example, if there are regulatory risks, or liabilities).
If there is a problem, and it is not documented in the data room (or cannot be derived from data in the room) or public sources (say, newspaper reports) then the seller is in a whole world of trouble, as the buyer and the bank will be after their blood.
Send Laywers, Guns, and Money (Score:2)
Don't do it... (Score:2, Interesting)
As a rule this sort of practice sucks. If the product is good enough, sell it on your own. If the big company wants it, make them pay up front just to see everything, they can afford it. The only defence you have is to contact all of the competitors of the big company and make them aware of what you have and the current situation. Hopefully you can get a bidding war going.
In general make sure you have the CEO of the big company as a signatory on any documents, make sure they are witnessed etc. Make it clear that you will go after the company and the indivdual if you have any problems. You can't win against the CEO but you can drag him through the mud.
Have second thoughts, and then third... (Score:2)
In short, you're facing a socialogical problem, you're not going to find an acceptable technological solution for it, anymore then the BSA et all is going to solve piracy through technological means.
In Writing (Score:1)
And yes, get a lawyer immediately. People will make life choices thinking a big gig will come through, but more than likely it will NOT happen. I have not heard of deals like this ever ending happily for the smaller company. Just because your client is larger and probably well known, there is no guarantee of "safety" in making such a lopsided deal with them.
Charge a "Risk Fee" (or the like) (Score:1)
First, I'm -not- a lawyer; thus, this does -not-
comprise legal advice, just "my two cents"...
(I'm writing from Australia where one woman has
reportedly served time in jail for providing
"word processing" services that were interpretted
as comprising the provision of legal services.
[I understand that she shared the -expensive-
law-firm provided divorce forms/papers/court-
submissions, used in -her- divorce proceedings
with another person, for a fee, by way of trying
to recoup some of the legal fees she'd incurred.]
And I don't want to be in jail for this post.
Now, there's clearly a -risk- involved to
the poster's company, et al. (eg its employees &
shareholders).
There is the hope & chance of reward.
Before signing on the dotted line, I'd be esti-
mating the value of each, as well as the value
of my IP to the bigger company...
and negotiating into the 45-day arrangement
a "Risk Fee" (by any name), i.e. payment of
a non-refundable amount that you feel justifies
your putting your IP at risk...
perhaps calculating a "rental" fee - sizable
due to the short term of the period of rental.
Of course, the payment would be applied to
the Source License fee, if they want to use
the IP after 45-days.
Moreover, the proposed arrangement does -not-
preclude others' suggestions that a -clear-
"for evaluation only; not for commercial use"
clause in you Non-Disclosure Agreement.
Of course, a non-refundable, advance payment
of [whatever you call] the "Risk Fee" -before-
they see your IP means you have more cash to
pay your 'legal eagles' in case of a breach
of the NDA.
What am I missing, here?
BTW, is the posting of such a question in
the hot-bed of the Open Source development
community provocative?
Re:Charge a "Risk Fee" (or the like) (Score:1)
ONLY if you have no choice... (Score:5, Informative)
If you must give them code, do it by providing actual *sealed* machines minus networking cards, and disk drives and usb ports (CD is ok, only if it is NOT writable). Seal up the box professionally with security seals that will show tampering. Place keyboad loggers and other spyware on it to watch and record what is done on this box. Go overboard and force the use of tempest-resistant fonts and lock down the system such that new software cannot be installed and add a *hardware* clock that will accurately mark off 45 days. On that day, have the system nuke the hard drive.
Re:ONLY if you have no choice... (Score:2, Insightful)
Vaseline (Score:5, Insightful)
Basically what you are doing is giving them 45 days to steal all your intellectual property. You said it yourself, you're going to do the "information transfer" and then they have the option of paying you or not. Do you think that the information you transfer is going to be able to be removed from the brains of the people who look at it?
If you've figured out how to do something they want, they should pay for it up front. Period. None of this "let us look at it for 45 days and then we might pay you if we decide we still want it".
About the only way this isn't going to turn bad is if this is something they really can't do themselves. If they can do it themselves, what is stopping them? Perhaps they hope to figure that out from looking at your stuff.
If you really do want to do this you need to get about 3 DIFFERENT lawyers involved, preferably an Intellectual Property lawyer, a Corporate (agreements) lawyer, and probably a third one for good measure. You have to make sure there isn't anything that they can gain from this, or if they do gain something they have to pay you for it.
In addition, you need to figure out exactly what they are wanting to see. If they just want to make sure the code isn't a nightmare and it is reasonably written, perhaps getting a third party involved to do the review might be a good idea. Or as someone else suggested, get them over to your place of business.
The key here is to transfer as little as possible before they commit to paying you. It sounds like you guys are giving them everything before they pay you. I think I'll repeat myself and say that this is a very bad idea. Get the vaseline ready. You'll need it.
The other question is the long term piece of this. A lot of the time these types of deals end up being great for a couple of years and then the two companies either split the sheets and one ends up going broke, or one eats the other one. As you're the smaller company, the chances of you being on the bottom when this happens are quite good. Are you thinking about the long term repercussions of this?
One last thing I'll say. Don't let your greed get in the way of your common sense. Quite often people loose their good judgement when lots of dollar signs flash in front of their eyes.
Good luck! And remember the vaseline.
50% up front (Score:2)
That way it is much less worthwhile for them to bother going through the potential legal hassles involved with stealing your stuff.
Of course, if they feel confident that they can get away with stealing your stuff anyway, it would just mean that they get it at half price.
Also, keep in mind the difference between copyright and patent. Copyright is yours whether or not you file with the government. Not so with patents. If they use your idea before you patent it, I believe that that constitutes prior art.
Don't bother trying any spiffy copy protection. 45 days is enough for them to get the idea even if there were no way for them to get a copy of the source (worst case for that: they take screenshots with a digital camera and ocr them).
And, obviously, don't trust me, ask your lawyer.
Re:50% up front (Score:4, Insightful)
The cardinal rule of copyright is: register before publication. If you don't, you might as well sign away the copyrights for free. Injunctive relief isn't worth a pitcher of warm spit.
Get a good contract with them that says they have to either pay a reasonable fee, or stop using the product after 45 days. (Don't try to get some sort of ludicrous penalties as another poster suggested. Ludicrous fees are routinely thrown out by judges, fair fees are difficult to argue against.) If you need to keep some things trade secrets, make them indemnify you against any losses suffered as a result of their disclosure of the secrets. (That should put a damper on them wanting unrestricted access.)
Why do they want the sources anyway? Are they going to compile the machine-readable sources, or just do a code review for quality, commenting, coherence, good style, etc. The latter could be satisfied by giving their engineers supervised access to print outs of the sources.
And don't trust me, I'm just some random pseudonymous geek on a web forum. Definitely get the assistance of a good lawyer.
vasoline anyone? (Score:1)
get one, or a few.
Write a contract that basically costs them 50% of thier corperate net worth if they are found using your IP without paying for it after 45 days, NO EXCEPTIONS for any reason. Define your IP rediciously well, make *any* information that you transmit to them during the 'trade' your property, weither you have a contract or trademark on it, and do not transmit any information except during the 'trade'.
if they won't sign that, then they are trying to ream you, and they should come up with another plan. Make sure someone who has control over that much of thier corperation is the endorser, it'd be better if you could cause a high up to be personally responsible, but if they are incorperated that'll probably be impossible.
More likley allow them to send ONE auditor over and look at stuff, under supervision (but not direction). Even better have them hire a 3rd party contracter (they shouldn't be hard to find in todays economy) that will review your code for 45 days and send a report back. Neither of these solutions could possibly cost them a penny more (well the 3rd party might) than having them devote a few developers reviewing your IP in house for a month and a half.
There is not one good reason I can think of they would recuire your entire IP to be transmited to them, there are alot I can think of for them to audit your IP.
This is why you have patents. (Score:1)
Just occured to me... (Score:2)
Either that, or your management is clueless about these types of transactions.
Not possible (Score:2)
This is fundamentally impossible. I mean, if they were really desperate, they could just take pictures of the screen showing the source. But more realistically, there are simply too many ways for them to bypass any restriction you put in place.
The only way you stand a chance here is with a contract in place preventing them from looking at the source code after 45 days and specifying huge consequences if they do. And to be honest, even that is very iffy.
Make it a hardware solution (Score:1)
Hire lawyers. As many as you need.
Step 2:
Buy a few nice laptops. Configure BIOS to disable floppy, USB, serial, sound, PCMCIA, network, external VGA, external mouse, external keyboard etc. Basically lock down the BIOS completely. Set BIOS passwords. Install Linux, create user account with just enough privelidges to preview your technology. Disable all network capabilities, floppy, USB etc just to be sure. At this point the only way to get data off the machine is to point a video camera at the screen, which would be a pain in the ass. If you can buy tamper detecting tape or glue, use it to lock down the hard drive. You cannot keep them from getting to the drive, but you could tell that they tried. Also, try locking down the runlevels to keep them from getting places they shouldn't. Think about rm
Re:Make it a hardware solution (Score:3, Informative)
Put the hood open, and *whoops*, looks like the CMOS battery got knocked out of place. No more BIOS protection.
Quick rescue floppy, and you've magically got root.
CMOS batteries die. Happens all the time. It would be pretty obvious that they screwed you, but you wouldn't have any grounds to seek damages.
Re:Make it a hardware solution (Score:1)
1 - remove floppy drive.
2 - remove cdrom drive.
3 - seal the case. Use glue.
Re:Make it a hardware solution (Score:3, Insightful)
Step 1:
Hire lawyers. As many as you need.
Step 2:
There is no step two...
Seriously, any physical measures that you take to try to protect that information can be defeated. If you don't trust these people with the information (and you shouldn't), a lawyer is the only security tool that will make a difference.
It's likely that said lawyer would reiterate some of the earlier comments: the best answer is to not give them the information. If they're really interested, they will buy your technology outright, with appropriate guarantees written into the agreement (and this is really the meat of the matter). The agreement can then stipulate that final acceptance/payment are subject to the results of an evaluation and testing period of 45 days, with testing to determine whether your product works as stated in that very agreement.
If your product doesn't work as promised, turns out to be completely undocumented and unmaintainable, or turns out to be "hello world" with a really pretty interface, it will fail to meet the requirements set in the agreement and it's terminated. If your stuff does work, they are required to fulfill their part of the agreement, as you will have fulfilled your part.
Re:Make it a hardware solution (Score:1)
BE VEWWY, VEWWY CAREFUL!!! (Score:1)
It's too easy for them to take the idea and not pay for it. Even if it means they have to do some moderate amount of development themselves. Like another poster said, they may have all they need except one crucial piece which viewing your source code will give them.
I also have some anecdotal evidence. First off, look at Microsoft's history -- littered with the carcasses of "partners." You don't want to end up like one of them (Spyglass, Stacker, many more).
My own personal anecdotal evidence: I lost a large sum of money investing in LynkUs (their website is now gone, and I can't find it in Google's cache). They were a Tampa-area company which provided two-way paging service, useful for stockbrokers to communicate with all their clients at once rather than phoning each of them serially. It also had medical applications, which is what got them screwed over.
They are now a one-person company operating out from home; basically, a shell waiting for the lawsuit [bcentral.com] .
I'm still hoping that something will come of my investment, but as of right now it's a total loss. I pray that the same doesn't happen to your company. Be careful!
Several (not just one, several) attorneys should review this for you prior to you giving up the family jewels.
really risky deal (Score:1, Informative)
And they can evaluate it for 45 days.
Why do they want to access your code/docs?
Possible reasons:
- They want to see if it is well written, well formated, rigourous, well documented, mantainable, etc, before they buy it. I mean, "no one" likes bad code.
- They want to do [develop] a similar technology and want to see your specs, code, docs to give them a head start when they start developing their own tech - this basicly gives them more ideas for their design document, and possibly gives them a couple of ideas for the most "nasty" stuff do be done. Remember that if your product has competition you'll possible lose money and have to sell it cheaper.
- They are already doing (developing) a similar technology BUT are stuck in one or more places, and looking at your source may give them the anwsers to the problems their facing.
- It's also possible that they want to know if your companies developers program good enough, possibly to try and hire them later [or even merge with your company at some point].
- etc, etc, etc... Think about some more reasons and protect yourself according to them. Make sure the deal is worth the risk.
So basicly, they can have "good" (acceptable) reasons, like the first one, and they may have more obscure reasons like those that follow the first one.You'll have to protect your company from this. Specially because it's your main product and if you lose it your company can get out of this deal in a really bad shape.
Some sugestions that may come handy:
Get a laywer and make a written agreement that specifies what they can do with it [and specify what they can't:
and so on].
Put everything you can't think of in that contract and state that if they break any rule in it (AND don't buy your product), they have to pay you big time - (estimate the value as YOUR_PRODUCT_VALUE*350%) - this way they ain't gonna feel like stealing your code and they'll accept it if they are well intentioned.
This way, you are saffer and get a "little something" wich you can use to pay more laywers. If their layers are really good, increase the %.
There's no way you can guarantee that they can't copy it.
They can use a pen and a piece of paper to take notes about your code, docs, etc, etc or they can even memorize portions it, and you can't sue them for that, cuz you don't know if they have it in their minds - ok, bring the lie detection machine in.
They'll have to think something like "If we double cross these guys they'll take shitloads of money from us and it cost more than just paying for the code or paying our developers to develop a similar thing.".
What you can do is use several defense mechanisms in order to increase the deal's security.
It's a risky deal. Prepare yourself.
Don't do it their way (Score:2)
Instead, make some objective Representations and Warranties in the acquisition contract -- say, your server (if you have one) can handle N clients, or the software handles functions X, Y, and Z. The objective is to have a fixed set of expectations that can be proved of disproved.
If the acquiring company wants to grab your good work for free, it will have to take you to court and prove to a judge (and maybe a jury) that your software doesn't do what you said it would do.
My two cents
I would only do this one way... (Score:1)
IANAL
Get a Good Specialty Lawyer Then Don't Worry (Score:4, Informative)
'Acceptance Period' with a much larger company for the purpose of determining if they want to license the source code and intellectual property of our main product.
Contrary to the majority Slashdot opinion, I wouldn't worry too much about the deal. Get a good lawyer who does this sort of work exclusively and you will be just fine.
45 days isn't all that long either. We (a Fortune 500 company) often get hardware and software for months before we make up our mind. (More than once, we had Cisco gear on loan for so long the model has been discontinued or replaced before we got around to approving it for purchase.)
When viewing source, the company viewing it is almost always in the more dangerous position. Once they see your code, should they every come up with a similar application, they will have to jump through hoops to prove it isn't based on your code. That can be very expensive.
Usually when I do this sort of review I'm looking for clean, well-commented code and good overall documentation. I am not a programmer by trade so I'm generally not evaluating the code itself but the overall maintainability.
Buying code from a company as small as you seem is dangerous. Often times, there are only a couple programmers who really know the application. Should they get run over by a truck or leave the company, I want to make sure that the code is clean enough that someone else (either in your company or mine) can pick up the torch and keep my business running.
It's not enough to have an excellent product today. I want to know that the product can change with our needs. That's the real reason I want to see the code and documentation as well as the finished product.
In summary, get a good lawyer and relax. This is common practice and a lawyer who has done it before will keep you from getting screwed.
InitZero
Use Adobe's eBook DRM (Score:2)
Limit the damadge (Score:2)
As for white papers about algorithms/data scructures/etc, print them on non-photocopiable paper and have them sign a time-limited-give-me-your-first-born kind of NDA.
I've seen it... (Score:2, Insightful)
Due Diligence (Score:1)
In contrast, I have seen repeated cases where companies have not exercised due diligence in their acquisitions of technology and/or firms, in whole.
I would propose an independent expert (mutually agreed upon), be given on-site access, to assess and evaluate the design, code, and training material. I would not provide copies of any material and/or training until the license deal is signed.
In a nutshell... (Score:2, Interesting)
0. A lot of the posts assume you're selling them the technology, not licensing it. You've got more flexibility in a licensing situation--in most cases there is no need for them to see the code at all, just to determine if it meets their needs. (see 2)
1. A patent is a very good idea, if you really have anything patentable. A provisional patent [uspto.gov] can be filed in a day and costs -lt $100. It lets you say "patent pending" and serves as a 12-month placeholder for a formal, expensive patent application. Even if you never follow through, or if your designs turn out to be unpatentable, if they don't know which parts are patent pending and which aren't, they'll be less likely to reproduce any of it.
2. Are they licensing your code as an engine or piece of a larger application? In other words, can you give them just an API? If so, obfuscate the code and give them a watered-down API doc that just gives them the methods they need to integrate with their systems. The goal is to hide as much of the internal architecture and actual methodology as possible.
3. A lawyer is essential. But, you'll never be able to prevent them, contractually, from creating a similar technology if they don't buy yours. Obviously, they need one, otherwise they wouldn't be thinking of licensing yours. You can, and should, use a contract to
4. Combine the review contract with the licensing contract. If they're serious about licensing, then make them go through the trouble of agreeing on and drafting all the terms of the licensing contract before they can touch anything. If you can swing it, spell out what specific, measurable conditions must be met during the evaluation. If they're met, the contract should allow for two options: licensing or consolation payment. If they're not met, then the contract could allow you some time (10 days, 30 days, whatever) to address the deficiency and satisfy the requirements--otherwise, you've got nothing to squawk about. While there's no such thing as a "standard" license, this approach is pretty standard.
5. Most importantly, trust your instincts. If someone (or a company) wants to screw you, they're going to find a way to screw you. If it doesn't feel right, don't do it. Even if it does feel okay, be prepared for anything. Either way, you'll be much more savvy next time. There's always a next time.
How about this for a suggestion... (Score:1)