Hello all, I slowly got myself into a sticky situation over the past 4 years, and looking for a good way forward. To give you a bit of perspective: I started as an engineer in a small technology company, and slowly grown to have more responsibility and I'm currently responsible for managing product development in one of our business areas. I'm doing a very good job at work and have good relationships with other managers and employees. At the same time, unbeknownst to my employer, I was running a business on the side (sole proprietorship) developing and selling engineering components online. My original plan was to gain more responsibility at work, while slowly running my business and perhaps closing it down when things got tough. However, that did not happen and my business has grown as well. Although the business areas are separate (employment - all low frequency mobile wireless for defense, my business is high frequency satellite components, optical and defense), surely there are potential conflict of interest issues there. I'm obviously not using any proprietary information from my company. I'm simply developing technology in another separate area of wireless communications. Leaving my employer would make it much more financially difficult, whereas closing my business would leave a lot of potential and skills behind, and it also reasonably profitable. What are some of your thoughts on this situation? Also, I'm planning to incorporate my business for tax reasons, what are some of the ways to protect my information? I was thinking of incorporating in Delaware for confidentiality reasons. Any thoughts would be greatly appreciated. Thank you!
When you say protect your information, do you mean protect the registered or registrable IP (and non-IP) related information in the products you have developed and business including business intelligence? Alternatively do you mean that you want keep confidential from disclosure to your Employer? Some of the things I would be considering are: - the validity of any restraint of trade clauses in your contract (geographical, temporal etc) - clauses that relate to development of IP and trade secrets - the possibility of termination of employment upon either voluntary or involuntary disclosure - the possibility of joint venture/licensing opportunities with other companies - opportunities to work with your Employer in further developing your IP depending on their capital, their attitude and respect for you having control over IP and of course their attitude. Your concerns are valid as the product development is in the same industry. Depending on the Employer, they may perceive that you have been somehow unjustly enriched by your experience with them, have used all your accumulated knowledge and are in some way leapfrogging off that to develop something which is superior. There is a lot of complicated case law related to the intersection of IP, restraint of trade and employment law. Employment law is not just confined to contract law but also extends to implied duties of good faith and fidelity. What I would be doing firstly (if you havn't done so) is developing an IP register, listing all of the potential and actual IP in every single aspect of your business imaginable. Think very broadly - any business methods, names used in trade, stationary, software, customer, suppliers lists, trade channels, electronic circuit layouts, logos, technical and non-technical drawings etc etc etc). From there you need to work out what is potentially registrable and whether it is worth registering. In any event, retain all your documentation, plans, drawings and date each iteration throughout any product development phase. Being an Engineer you probably have some kind of IP policy and process you follow so you'd realise that ownership in IP is always a history lesson and sometimes the copyright in underlying drawings in patent cases can be critical. (you have a first to invent rather than first to file system in the US in patent). You must have been using some components from other suppliers, but once you do an audit it will be much easier to work out what you are sitting on. I know this might sound trivial given your concerns about surviving but I would seriously think about filing a trademark. You may have already have common law trademark rights by virtue of use in commerce. However your rights are stronger and more susceptible of proof with a certificate. Of course you would probably be thinking that if you do file a trademark your Employer will be more likely to find out. It sounds as if you have a viable business. You can't have it both ways. If you have been selling registrable products then of course anyone can reverse engineer them, but you would need to seek out the advice of a Patent Attorney to see whether there is any patentable subject matter involved in any of the products or processes you have used. I think once you work out what you have got and protect it you will be in a stronger position to bargain, whether with your Employer if they react adversely or in respect of any future licensing opportunities. A lot of course will depend on the attitude of you Employer. If they are smart they will realise that the most valuable asset are their Employees and maybe if they work with you rather than against you they will be able to create more opportunities for themselves than by taking an aggressive posture.
Hello PaceLegal, Thank you so much for your help! I have minimal legal experience, so it was great to ponder a number of points that you brought up. Your post also gives me good leads on further reading. Yes that is exactly what I mean. I don't think that it would beneficial for me to venture on my own right now. To give you a better perspective of where I am, I think it would be good for me to share some numbers. When I started 4 years ago, my salary with my employer was $79K + benefits, and my business was around $15K annual revenue, with around $5K profit. Nowadays, my salary is $125K + benefits, and my business is around $62K revenue, with about $30K profit. So you can see that it is difficult to give up either one at this point. What I would really like to do at this point is to incorporate my business (I'm simply getting slaughtered on passthrough taxes currently) to reduce tax liability and also to enable writing off taxes on car, costs of business property etc... However, I'm afraid that through incorporation this information would begin to appear on my tax documents etc... Is there a way for me to minimize visibility of my name in the process of incorporation? For example declare company in Delaware with confidentiality, then register the company in my state without giving away the name? I'm particularly worried that my name is currently appearing on all customer shipments. I would like the name of the company to appear instead. Regarding my IP - yes, I'm thinking about trademarks and locking down my IP. But it's difficult and expensive, and again increases visibility. Any thoughts would be greatly appreciated. Best regards,
I am so reluctant to give advice even though I cannot give legal advice as I can see how much is at stake for you and what kind of dilemna you are in. (much to your credit I would add). I understand what you are saying about incorporating in Delaware and only from what I have read, not being an American, there appear to be many advantages in registering in Delaware even beyond confidentiality. (including but not limited to being very cheap). However not knowing enough about the landscape I wouldn't want to ignore the whole picture and think investing in some legal advice would be a very good investment. You are obviously very gifted and I would want you to make sure you cover all bases so that you protect your interests. There are all kinds of creative things that tax and corporate legal specialists can explore with you (beyond the scope of my knowledge) in addition to looking at IP holding companies if you wanted to go that far. There are ways of protecting 'information' which is non-patentable although it is much harder. Some of the most profitable companies in the world manage to do it, although obviously once something is published it no longer has the quality of confidence. That is why people prefer IP as it feels more secure. The only reason I don't want to get into this are further is because I don't want to risk misleading you. I don't know exactly what your status is (employer versus independent contractor), what your contract terms stipulate, what the reaction of your Employer is likely to be short and long term to any disclosure. These are all unknown variables and I am from another country. I think the amount you have at stake warrants very careful scrutiny rather than a stab in the dark from someone who isn't qualified to give legal advice at present, let alone in an area where I am out of my depth and requires a certain degree of knowledge of tax and corporate law. The things I flagged were very very general and value and therefore not very helpful but it is a commonplace situation that happens with employees/independent contractors/Managers in employment situations. They are mainly general issues to consider for someone who, as you are, is enterprising and needs to consider and balance competing interests when trying to develop a business (hard enough without worrying about worrying about IP audits!). Then there are the restraint of trade, potential conflict of interest, contractual and equitable duties of good faith and fidelity which you need to bear in mind re: your Employment now and in the future. However I just don't want you to overlook what may seem to be small things now like tracking your own IP so you can verify ownership should things get ugly (fingers crossed) and you face potential battles later on whether with your employer or any other third party claimant. These things seem minor now but could be of major significance. Whether registrable or non-registrable, underlying documentation is an important part of the product development phase in infringement proceedings and ownership disputes, whether as a defendant or Plaintiff, something you probably already know being an Engineer and being familiar with the capital that goes into drawings which form the foundation for inventions or valuable intellectual know how. Some of these things have as you have identified include maintaining low visibility through incorporation in Delaware are beyond the scope of my expertise but I will certainly keep exploring. I always like to learn of the 'advantages' and hope there are no disadvantages that I am blinded to because of my non-familiarity with laws. Best of luck. Any specific issues that arise please don't hesitate to PM me.
Pacelegal: Thanks again for all the detail! I'm a detail oriented person and love reading / compiling details. Regarding incorporation in Delaware - it's not cheaper, it's more expensive than other states. The reason is simple - incorporating in Delaware is cheaper, but if you have a presence in another state you need to "qualify to do business" in your state of presence. Most companies incorporate in Delaware because corporate law is much simpler, and has lots of precedents based on which cases can move quickly through the courts. In fact, most law schools teach Delaware corporate law, so legal counsel is trained in Delaware corporate law, and as a result it is much safer and easier for companies to incorporate in DE. Another advantage is that DE law is very business friendly, so you can be as confidential as you want to be. Regarding being afraid to mislead me: don't worry about that. I'm a sucker for information, and every piece of information will be thoroughly analyzed. Thanks so much for your response!
You really should consult a corp atty...in my wife's case, she is pretty much forbidden to work on the side or starting a business that could conflict or compete with her employeer...you seem to be doing faily good, better then most, so you should take the advice, and talk to a real atty that can obviously answer all of your legal questions... it would be well worth it in the end for you to pay a couple hundred for legit advice, as he would be able to guide you without question as this is what they are trained to do, and why they spent years in school....
Where's the guarantee that after I talk to an atty, this information won't get to my employer? There are laws and then there's real life. I'd like to start with reducing visibility, and then start handling IP and legal stuff
I see, I am learning from you. Understand. I was just looking at the registration costs. I am aware of how a little bit of reading can be dangerous and Rome wasn't built in a day! I did read that Delaware corporate law is simpler and business friendly. I'm just educating myself about Delaware law, not that I need to, but like you I like to soak up information. (and am loathe to convey much about anything I don't have a minimal grasp of). Maybe if I studied it for five years I might feel qualified to render a competent opinion. "Regarding being afraid to mislead me: don't worry about that. I'm a sucker for information, and every piece of information will be thoroughly analyzed.Thanks so much for your response!" You are most welcome. I havn't helped you at all, and in fact you have been the educator. However being a sucker for information will hold you in very good stead. I agree with dscurlock that you may need an Attorney to consult, but this is the way I look at it from a legal point of view. Attornies will for the most part be in agreement on most things. However as you know, some will disagree on strategic things and even legal points of interpretation. Therefore the more YOU know the more discriminating you are going to be when you ask for that first opinion. That is one of the things I have noticed about small business people and lay people who are supposedly uneducated in the law. They are often specialists in what they do and sometimes acquire a more specialist knowledge of an area than your garden variety lawyer (one who isn't an accredited or recognised specialist in a particular area at least). Some will because of time constraints and pressure to make money or just through not being able to know everything make mistakes or not be able to devote as much time to your matters as you are. Therefore the more you can educate yourself (both by tapping into legal advice - however you choose to, reading, talking to lawyers, fee paying and non-fee paying advice etc), the better positioned you are to know what how to get the most out of it. I'm not putting the legal profession down but same applies to the medical profession. I saw a discussion on linkedin and I took objection to a lawyer saying that business people and people from allied professions (eg IT, business, media) didn't have any business giving their opinions on "important issues of law". As you know LinkedIn isn't a legal question and answer site, or a paid legal service. You get brilliant answers from attornies, mediocre and ill informed ones, whilst you get some unique and great value from a person with a business perspective who has spent their life in an industry or dealing in cases of a particular kind. So my feeling is that you don't shut down anyone. Obviously a layperson doesn't have the professional indemnity to cover negligent advice, or the qualifications to give professional legal advice, but people want to hear what they have to say, even if they don't necessarily rely upon it. Best of luck..
There is Attorney-Client Privilege but there are supposed to be conflict of interest and ethical rules that Attornies are SUPPOSED to adhere to when dealing with clients where they have prior dealings with other clients and something comes to their attention which has a bearing their legal duties and obligations to their clients. They are supposed to abide by a code of ethics. Whether that always happens is another thing. I guess you can't guarantee anything, although it is best to disclose your identity, and maybe just discuss in the abstract what you are proposing to discuss prior if you do decide to talk to an Attorney, with the realisation that it can be a small world and either the Attorney knows your Employer or has other interests which could interfere with them giving you legal advice. In an ideal world they should tell advise you at that stage to seek legal advice elsewhere. Bear in mind, if you do seek legal advice the Attorney MAY tell you that reducing visibility might actually be something which could expose you to greater liability if, in their opinion, you are engaged in a conflict of interest, and you should mitigate your loss by making disclosure early. Bear in mind, it is up to you to decide whether you want to accept that advice or seek another legal opinion. Of course lawyers do like money and are supposed to give you frank advice and use their forensic judgement, but are also influenced by the need to follow your instructions even if they think that those instructions are not prudent legally. Obviously Lawyers may issue their opinion in writing so that they cover themselves if you should decide to take a different course than they advise and want them to still act for you.
Despite what you see fictional attorneys doing on TV shows, almost all attorneys take client confidentiality very seriously, both out of professional responsibility and due to the fact that if they have loose lips, they will lose the confidence of their clients and eventually their livelihood. If you have customers and suppliers, it is much likely that your employer would learn of your activities through industry sources rather than from your attorney. I think pacelegal has laid out some very good points for you to consider, but ultimately with the dollar amounts you have indicated on the line, you really need to talk to an attorney who is familiar with the particular quirks of California employment law.
Something leads me to think he does not want his employer to know something for a reason... Is the OP selling something that his employer may have come up with? Is this why he wants to keep this a secret from his employer? Because if he took any knowledge from his employer to come up with and sell his product, then he would want to keep a secret.... but I could be wrong...but he seems to be really be determined on keeping this from his boss...
My boss will take money from anyone, as long as there is opportunity. If he finds out, he will attempt to steal my technology, and his company is a lot bigger than mine. I'd prefer to keep my job. Selling your own products is very hard, as you essentially have to do everything yourself including business dev, management, financials, administration, procurement, closing projects, post-sale customer support, taxes. On top of that, you have pay for your own benefits. I would love to quit my job and just focus on my business, but it's not that easy. Regarding distrust of lawyers and gov't officials, sorry that's built in, especially given what has been going on in the financial and mortgage sectors the last 5 years As you know, I currently have essentially no legal protection, and I'd like to take it slow and safe. When I have at least some legal protection, we can go through full official channels.
Of course Attornies take client confidentiality if not out of a sense of professional responsibility, survival. However I wasn't talking about popular TV shows. I was talking about that tiny percentage that makes it's way to the disciplinary body. These reports are free for all to read. I won't enlarge. I don't know about in the US but the rules seem to have changed over the last ten years. The mega firms are advised by ethics committees that the big firms who have acted for a major client can segment that advice of rendered in one division (at least in Oz) and have another lawyer render advice to another even in the event of a conflict of interest. Maybe that is workable and even invariable given the amount of consultancy, contracting out etc, however I think it does mean it depends on the integrity of the firm and lawyers. Some indiscretions may be subtle and never discoverable in their impact. Tele, I see what you are driving at with discretion and visibility with respect to your trademark. Maybe you can hide behind the corporate veil in Delaware but I think somebody may already have said it (and I agree) that in a world of wholesalers, suppliers, third parties of various types your trademark and identity is eventually going to be become known to your Employer. Conflict of interest is broadly defined but your field of activity is in the same industry and in my non-educated opinion the difference is one of the sophistication of technology. I agree with dscurlock that conflict of interest can be very broadly defined contractually (and sometimes that is in breach of restraint of trade at common law), however in your case you are operating in the same field. If you don't know a good Attorney I'd ask some people you know in the business community or contact the Bar and they should be able to put you in touch with one. Best of luck
Well, it looks like you got off the ground with 4 years of services as a small startup successfully. You are working with proprietor software and trade secretes, as a result you have established similar to the company (many people get ideas from different places) yours is from your company. From your description, its nothing similar (if it is proprietor products/intelligence base) you will get into a lot of trouble later on (Be sued). But even if you are sued, you can still run your clone (if it isn't like 80% of the stuff you are hired to do) other than that chances of them taking your company and your profit is low. But it does happen. Did you see facebook interview? Zack stole the idea from some other harvard guys he was working for, he sabotage their site/code so that he would be the first in the market? Well ...he still owns facebook because he's the guy that grew it (sort of, with his billionaire connection fundings*) Anyway. If you will be successful, and if it is proprietor stuff, you will lose probably about 60-100% of it. If its just retail business, doesn't have anything to do with proprietor stuff, you are safe. Most other people feel guilty, when doing things on the side, so they quit to start their own company. From your info, I think you have done very well, I say go start your own company. If you feel you can't, then continue doing your job, and at your best interest do what you want (just be aware, that what you are doing is in the gray area, and in really illegal areas if it is proprietor stuff).