13
May/10

From The Idea Disclosure Worst-Case Scenario Files


Plaintiff is in the septic-tank cleaning business (with a ‘green’ marketing approach). When applying for a residential mortage, he provided confidential documents about his business to a mortgage broker,. The mortgage broker apparently likes what he sees and goes into the ‘green’ septic-tank cleaning business himself. Plaitniff sues on a ‘host’ of causes of action, including breach of fiduciary duty, trademark, copyright and trade secret (the tm and (c) causes arose from allegations that the websites were similar).
After what sounds like bitter and unpleasant motion practice, defendant moves for partial summary judgment which the district court grants and then, sua sponte the Court dismissed the remaining causes. Plaintiff simply provided no evidence that Defendants used the confidential information to steal plainiff’s customers, etc. (and what Defendant did use was easily available to all, for example, the identity of a large supplier). Second Circuit has now affirmed.
There are two broad schools of thoughts on information disclosure: paranoid and open, and they’re both sort of proven right here. The idea that even your mortgage broker will drop everything and compete with you confirms the worst fears and keeps the NDA business thriving – and keeps entrepreneurs from taking meetings with people who could help them. These are the sort of entrepreneurs who want to foreclose competition through the ownership of proprietary information (or who believe that they don’t possess the resources to execute the idea which is the situation with my idea for jet-packs).
To me, the open school is exemplified by a quote I’m mis-remembering from Paul Hawken of Smith and Hawken, which is “Don’t worry about someone stealing your idea; no one can steal the precise way that you will execute your idea.” If that’s too airy-fairy for you, consider entrepreneur/VC Chris Dixon’s argument in favorable of openess entitled “Why You Shouldn’t Keep Your Startup Idea Secret.” He argues that the benefits of discussing the idea outweighs the risks of disclosing it. Read the whole post but I’ll repeat the ‘money’ quote:

Even if your idea gets in the wrong hands, they will probably just get the high level “elevator pitch” which isn’t worth much anyways. Hopefully by that time you’ve developed the idea much further and in much greater detail – by talking to as many people as possible.

I say that this case confirms the open school worldview because the defendant prevailed, seeming to suggest the limits of proprietary information as a barrier to entry. Defendant appears to have taken a broad idea: “Green septic tank cleaning is a good business” and apparently has not taken any protectable trade secret information. And he was not foreclosed from competing with Plaintiff. In other words, you can’t keep your business a secret, deal with it.
Now bear in mind that I too am talking about disclosure at the ‘elevator ptich’ level, not two high-tech companies working on a joint venture. Given my profession, I’m well aware that there is copyrightable, patentable and trade secret information, and that it can be valuable, and that it can be stolen.
Oh, one more thought about mortgage applications and the like – redaction.
Decision Biosafe Idea Disclosure