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Seeking Someone to License the Heart of Your Company?
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?
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.
The only time I've been in a similar situation I was lucky because I could hand over a piece of hardware and say "go on then, assess this". But software? Source? Training and documentation? You're about to be raped, buddy.
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
I write a blog now, you should be afraid.
Before you give them anything, have them sign an agreement that they will destroy any material they receive from you in 45 days. If you find they are using your information after 45 days, you can take them to court and show the court their signatures. IANAL so I don't know if this would work very well or not, but it's an idea.
"I don't trust goats," --To Catch a Spy
Shut up, be happy. The conveniences you demanded are now mandatory. -- Jello Biafra
My uncle (he wrote WordStar) learned a very expensive lesson in the 80's when he did a similar R&D disclosure. The Companies (MS, Lotus, Corel) copied the work and later released their 'own' products and stiffed my uncle on roytalies. After years of court battles the cases we're lost. What you can do today is patent protect your core technology. Patents infrigment cases are defended by the US patent Office process rather than your States Licence agreement/contract laws.
"Get them before they get....
GET A GOOD LAWYER NOW.
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.
If you're in this position, you really should ask yourself if you're not in the wrong swimming pool. Small fish get eaten in the big pool. You might want to rethink your stratagy, if you're looking at a situation where you have to essentially let someone read the book before they decide if they want to buy it.
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.
On the whole, I find that I prefer Slashdot posts to twitter ones because I don't get limited to 140 chars before
If you do this, first: prepared to be so incredibly reamed. American companies have long sice lost the concept of business ethics. They are NOT buying your source, they are looking to buy your engineers, understand this. Why? becuase if they aren't interested in your engineers, then they aren't interested in maintianing your code, which means if your code can be profitable to them then they are going to steal your source or at least the concept behind it *no matter what*, prepare yourself for this.
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.
"Your superior intellect is no match for our puny weapons!"
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.
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.
Why is Grand Theft Auto a much more serious crime than Reckless Driving?
Either that, or your management is clueless about these types of transactions.
A firewall can not protect you from yourself. Turn off what you do not need. Do not use the firewall to do your work.
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.
Oceania has always been at war with Eastasia.
Lets just say I've encountered a similar setup when trying to put Linux on a Win box.
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.
int func(int a);
func((b += 3, b));
Having gone through this two years ago, and it's looking like I'll do it again in the near future, let me suggest that you _not_ let A Big Company look before they buy.
...
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
It's Linux, damnit! Pay no attention to renaming attempts by self-aggrandizing blowhards.
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.
* * *
It is a dada story -- it has no moral.
'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
That's totally secure, right?
sulli
RTFJ.
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.
Pedro Côrte-Real.
For awhile our company was trying to win an account from a much larger firm. We had to jump through all the hoops and detail what we were doing. They almost took the info and dump us. I think they knew they could recreate what we had but there were some other services they needed from us. Becareful.
Yes but every time I try to see it your way, I get a headache.
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 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.