How To Protect And Monetize Your Business Idea During The Submission Process

Aug 16, 2017|General counsel
Rodriques Law

You have a great idea for a new product or service, such as a mobile app or film valuation technology. You want to submit your idea to a company with the hope of getting a licensing deal. But companies receive numerous business proposals from individuals and other companies all the time. Your invention may be similar or identical to ideas submitted by other members of the public. It may even be similar to a project that the company and its employees have developed or are developing internally. You may even be a current or former employee of the company, or a current or former employee or consultant to the company’s competitor. How then do you approach a company to license your business idea and get paid for it?

Licensing your concepts or invention is the process of selling your idea to a company that will take on the risks of developing your idea and taking it to market as a new product. But although submitting an idea to a company can be rewarding, it can be a considerable risk to both you and the company.

The issues that you will need to consider when submitting your business idea to a company will depend on whether the submission is unsolicited, solicited or the company or its competitor is your current or former employer.

1. Unsolicited Idea Submission

A company’s receipt of unsolicited ideas from members of the public may expose it to liability. On the other hand, submitting an unsolicited idea to a company without taking appropriate precautions could see your idea stolen and/or you do not receive compensation if your idea is used by the company. The extent of your risk and the company’s liability may depend on whether or not the company has established any unsolicited idea submission policy.

    a. Unsolicited idea submission policy absent

Where there is no unsolicited idea submission policy (or an inadequate policy is in place), a company will, in general, be obligated to make appropriate compensation to persons who submit ideas or proposals to it, if the company discloses or uses those ideas or proposals without consent.

    b. Unsolicited idea submission policy present

Companies which have established an unsolicited idea submission policy, generally do so to limit their liability to parties who may submit unsolicited ideas to them. These policies are often posted on the companies’ websites. You should read carefully, and fully understand, a company’s submission policies and procedures prior to making any unsolicited idea submission.

An unsolicited idea submission policy may consist of one (or a combination) of the following terms:

  • No Acceptance. The company rejects all unsolicited idea submissions outright. The company may retain absolute discretion whether to use the unsolicited idea, and is free to use the information any way it chooses.

  • Assignment. The submitter automatically assigns all the intellectual property rights in the idea over to the company.

  • Confidentiality. The company will not treat the unsolicited idea as confidential, and there is no confidential, fiduciary or other relationship between the parties.

  • No Expectation of Payment. The company has total discretion over whether there will be any compensation and the amount of any such compensation that will be paid if the company uses or discloses the idea without the submitter’s consent.

  • Acceptance of the Terms of Submission. A company may employ a clickwrap submission agreement policy on its website. Since such a policy is part of the submission process, a submitter may be forced to accept the company’s unsolicited idea submission policy via clicked assent to its website's terms and conditions. The user must accept the company’s terms and conditions of its unsolicited idea submission policy prior to submitting any ideas.

2. Solicited Idea Submission

In an attempt to bolster their innovation efforts, many companies do solicit and encourage members of the public and/or their employees to submit business ideas, concepts and proposals to them. Unless some other contractual arrangement already exists between the parties, such as under an employment contract, the parties will typically enter into a Submission Agreement, usually prior to the idea submission. The terms of such a submission agreement may consist of one (or a combination) of the following provisions:

  • Confidential Relationship. A company will attempt to force a submitter to acknowledge that the company does not receive the idea in confidence and thus, the idea is non-confidential, and that the company is under no obligation to maintain the confidentiality of the idea, even if the submission is marked “confidential.” However, a submitter should make every effort to reject such a clause in a submission agreement. Obviously, one of the main purposes of a submission agreement must be to protect the confidentiality of the ideas, inventions or proposals submitted.

  • Representation and Warranty. A submitter represents and warrants that the idea is original to the submitter and that the submitter owns all rights in the idea and has the absolute right to make the submission. A company will want assurances it will not be liable to third parties for accepting ideas that are in violation of an agreement or understanding with another party, such as the submitter’s current or former employer. 

  • No obligation to Use. The company is under no obligation to review, evaluate, purchase, license, sell, develop, produce, or commercialize the idea or invention. There will be no express or implied obligation of any kind by the company, unless or until the parties enter into a formal written contract, such as a licensing agreement.

  • Rights and Remedies. All rights and remedies of a submitter arising out of the disclosure or use of the idea by the company may be limited to any rights and remedies the submitter may have under U.S. Patent or Copyright law, such as for patent and copyright infringement claims. This ensures the company will not be liable for using those ideas which are not copyrightable (that is, are not original creations), or patentable (that is, are not “concrete” and “novel”), or which the company developed independently or obtained from a third party. In that regard, in order to protect itself against claims arising from the submission of vague or abstract ideas, a company may adopt a policy of only accepting ideas that have already been described in a provisional patent  or nonprovisional patent application (where the ideas are patentable).  

  • Waiver. Other than for claims under U.S. Patent and Copyright law, a submitter may waive all claims of any nature, including express contract, implied-in-fact contract, or quasi-contract, arising out of any use or disclosure of the idea by the company.

  • Compensation. In general, there is no obligation by the company to compensate a submitter merely for the receipt, review, or evaluation of an idea. In such case, the information provided to the company is solely to consider a future business relationship and the submitter has no expectation of payment.

    On the other hand, there is, in general, an expectation of compensation, in the event the company decides to use, or disclose the idea to third parties, without the submitter’s consent. As a result, the submission of an idea in response to a solicitation is more likely to be determined by the courts to create an express or implied obligation to compensate the submitter, than the absence or presence of an unsolicited idea submission policy would. However, if the company decides to use the idea (with the submitter’s consent), the terms of any compensation may be reflected in a separate written agreement assigning or licensing the idea and all associated rights to the company.

  • Governing Law; Disputes. The submission agreement will normally be governed by the laws of a particular jurisdiction (usually chosen by the company), and any disputes between the parties may be brought in the state and/or the federal courts of that or some other jurisdiction, or submitted to arbitration.

3. Idea Submission by Employee or Consultant

Often, employers will require an employee, independent contractor or consultant to sign an employment contract. The terms of employment may be that the company will own the ideas or inventions related to the employer’s business. As such, a receiving company will look carefully to see whether a submitter is the company’s current or former employee or consultant, or another entity’s, such as a competitor.

    a. Current or Former Employee/Consultant of Receiving Company

If submitting ideas to a current or former employer, the company may already own your idea, or at least have a right to use your ideas without additional compensation. Check the hiring documents before submitting your idea to your employer. Potentially conflicting rights that you should investigate include:

  • Works Made for Hire. Under the U.S. Copyright Act, the ownership of the copyright in a work belongs to the employer, where (1) the work is prepared or created by an employee within the scope of his or her employment, (2) a work specially ordered or commissioned for use as a contribution to a collective work, such as a  part of a motion picture or other audiovisual work, or (3) certain types of works created by an independent contractor when a written agreement between the parties designates the work as a work made for hire.

  • Shop Rights. Although the work made for hire doctrine does not apply to patent rights, if an employee makes an invention while working within the scope of his or her employment, during work hours or using the employer’s resources or facilities, the employer may have a “shop right” in the idea. A shop right is a common law doctrine that gives an employer an implied royalty free, nonexclusive and nontransferable license to use such an employee’s invention, even if the employee never assigned such rights to the employer.

    However, the express terms of an idea submission agreement may supersede any rights to use an idea that the receiving company would have enjoyed under common law. Therefore, it is critical that the company does not promise a submitter additional compensation for an idea submission that would otherwise be subject to shop rights, since an express promise to pay can block an employer’s attempt to assert an implied royalty-free license under the shop right doctrine.

  • Hired to Invent. Under the “hired to invent” doctrine, in the absence of an employment contract provision to the contrary, where an employee is hired to invent or to complete a specific research and development project, and makes an invention or improvement within the scope of his or her employment, an employer may be entitled to an assignment of the employee’s invention. In that event, the employee would be under an implied obligation to assign to the employer the rights to any resulting invention. Note that Even if the employee would otherwise own the invention, the “shop right” doctrine may apply.

  • Assignment Agreements. An employee, independent contractor or consultant may have signed an assignment of invention agreement or otherwise assigned their prospective inventions and copyrights under an employment agreement.

    An employee’s assignment of inventions as a condition for employment is valid whether or not it is supported by additional consideration. Special attention should be paid to the language of such assignment contracts, including (i) what intellectual property rights are being transferred, (ii) for what purpose and duration, (iii) whether the transfer is a license or ownership, (iv) what rights are reserved or retained by the transferor, (v) any limitations on how the transferee may use the ideas or invention, and (vi) the status of any collateral and derivative works.

  • "Trailer” Clauses. Invention assignment agreements may contain “trailer” clauses, which require former employees to assign certain inventions to their former employers that are made within a certain period following the termination of the employment. “Trailer” clauses will normally only apply to inventions that relate to an employee’s former duties.

    b. Current or former employee or consultant of another company

A receiving company should be especially cautious if proceeding with an idea submission from a submitter who is the current or former employee or consultant of another company, such as a competitor. If the submitter is obligated to assign his or her rights to his or her employer, or if the idea is a trade secret or proprietary information of that other company, the receiving company’s use or further disclosure of the information may trigger liability under state trade secret law, or may be the basis of a claim for tortious interference with a contractual relationship.

As stated above, an employee or consultant has no rights in a work made for hire, and cannot assign or license the work to a third party. In addition to carefully evaluating whether his or her current or former employer has rights to the idea or invention, a submitter should evaluate whether disclosure violates any continuing obligations, such as under a confidentiality and non-disclosure agreement. Under the terms of a confidentiality or non-disclosure agreement, a current or former employee may be prohibited from disclosing confidential or proprietary information for a period of time following the end of employment. In addition, certain former employees may be barred under the doctrine of “Inevitable Disclosure”. Under the inevitable disclosure doctrine, a company may be able to prevent a current or former employee or consultant from working for its competitors under circumstances where such employee (or consultant) could not reasonably be expected to fulfill his new job responsibilities without using the company’s trade secrets. Under the inevitable disclosure doctrine, courts have enjoined employees from working for a company’s competitors even in the absence of an express non-disclosure or non-compete agreement.

4. Establishing a Claim

A submitter can successfully assert claims for compensation against a receiving entity in idea submission cases on an array of legal theories, including patent, copyright and trademark infringement, breach of express and implied contract and trade secret misappropriation.

Copyright. If you create an original work in a tangible medium, including software code, it is entitled to copyright protection and you may prevent anyone else from copying or using that work without consent. You may or may not have taken steps to register your copyright, such as with the U.S. Copyright Office. A work does not need to be registered to be entitled to protection under U.S. Copyright law.

Patent. If a submitter has already obtained a provisional or non-provisional patent, it is evidence that the idea is reasonably “concrete” and “novel”. In addition, since the receiving company may not treat the idea submission as confidential, a prior patent application will prevent the submission from being a disclosure that may cause the submitter to lose his or her right to obtain a patent.  

Trademark. A trademark can provide an additional layer of protection for an idea or invention, since it is used as a source identifier for particular goods and/or services, and to distinguish the products of one owner from those of others. You can trademark the name of the business idea or invention. The documentation required to register a trademark can serve as written proof that you are the first to use the idea at a specified time. 

Implied-in-fact Contract. An implied-in-fact contract may be created due to the existence of a confidential relationship or trust between the parties, industry custom or from other circumstances surrounding the idea submission. The presence of any custom or practice in the relevant industry may determine whether the company will be obligated to compensate a submitter if the idea is used, even in the absence of an express agreement to do so. For example, there is a custom and practice in the toy industry to compensate submitters for the submission of toy concepts, if the ideas are subsequently used to develop new products.

Obviously, the terms of any written idea submission policy or submission agreement are likely to form part of an express agreement between the parties. Courts have generally rejected attempts to challenge submission agreements containing waivers or other restrictive terms as contracts of adhesion or unconscionable.

Misappropriation. misappropriation of ideas can arise where a submitter discloses “concrete” and “novel” concepts to a receiving company within the context of a legal relationship (such as a fiduciary relationship), an express or implied-in-fact contract, or quasi-contract (including a confidential relationship), and the receiving entity used the idea without consent.

5. Keeping Accurate Records.

Because the circumstances concerning an idea submission, and the receiving entity’s response, may be critical to establishing an implied contract, both submitter and receiving entity should maintain complete and accurate records of any communications concerning the idea. Companies should channel all idea submissions to one person or department in the company. Submitters should keep track of all communications with prospective companies, and their submission should contain sufficient identifying information about the idea, such as legal status of the concept, including patent registration, copyright or trademark information.

Conclusion

To limit its risk and liability, a company should employ at least a written idea submission policy (on their website or otherwise) that a submitter must accept prior to submitting any ideas to it. Such agreement should foreclose any confidentiality, implied promises or duties on the part of the company.

Before you submit your ideas, concepts or invention to prospective companies, be sure to understand their idea submission policy. This includes contacting a lawyer to explain any terms you do not understand. Of course, you will also need a lawyer when it comes to negotiating the licensing agreement, to help you to understand exactly what certain terms mean, and how you can get the best deal for your brilliant idea.