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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.
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....
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.
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.
-- ;-)
Kuro5hin.org: where the good times never end.
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));
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