(212) 804-8663 Get in Touch
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.
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.
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.
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:
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:
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:
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.
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.
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.
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.