Last post I mused that had Richard taken certain steps in the first season of Silicon Valley, he might now have ammunition to use against Hooli’s lawsuit. What am I talking about? To very crudely recap what happened last season, Richard invented Pied Piper, a music copyright search service that hid within it amazing lossless compression technology. Richard shared his software with two “brogrammers” at Hooli, who (being slightly smarter than they appeared) realize the importance of Richard’s compression technology and informed Gavin Belson (Hooli’s CEO). After Richard refused to sell Pied Piper to Hooli, Hooli reverse-engineered Pied Piper and used Pied Piper’s technology as the basis of Hooli’s competing product called Nucleus.
Richard’s first mistake was sharing the alpha/beta version of Pied Piper with the “brogrammers,” people he did not really know or trust (and who worked at his current employer!). His next mistake was to soft-launch his product without any contractual protections. This mistake is easy to make. Early-stage developers and inventors can be so excited by getting their new product into real end-users hands that it’s easy to put off seemingly unessential and boring “paperwork.” However, by releasing Pied Piper in an uncontrolled manner, Richard may have jeopardized trade secret protection over his technology and/or started the one-year clock running on the time in which he had to file a patent. These possibilities alone should be enough to make any would-be founder pause and consider the implications of an uncontrolled soft-launch.
Furthermore, Richard gave up his chance to impose contractual controls on what the brogrammers did with Pied Piper. As soon as Richard started sharing Pied Piper with ‘outsiders’ or users he should have required them to agree to, at minimum, restrictions on how the Pied Piper software and technology could be used or copied, and a prohibition on reverse-engineering. Richard may have also wanted to include a confidentiality provision and other terms that defined Pied Piper’s relationship with its users. Depending on the circumstances, such agreements can be contained in a License Agreement (such as an End User License Agreement or ‘EULA’), terms of service (TOS), terms of use (TOU), or a non-disclosure agreement (NDA). Two key steps in implementing these agreements are to: (1) make sure the user affirmatively consents to the agreement (e.g., by clicking an “I Agree” box or button), and (2) create a ‘paper trial’ that records sufficient information to identify the user and the person’s affirmative consent to the agreement.
Had Richard done this, Hooli and the brogrammers would have been contractually prohibited from reverse-engineering Pied Piper and using the technology as the basis of Hooli’s competing product. Would Hooli have paid any attention? Maybe not. But Hooli would ignore these restrictions at its own risk. By ignoring them, Hooli would be giving Richard a basis for bringing ”counter-claims” against Hooli and seeking damages based on Hooli’s competing Nucleus product, or even seeking to shut down Nucleus entirely.
As a startup, it is highly unlikely Pied Piper would be able to launch an offensive lawsuit against Hooli. However, by giving Richard a legal threat of his own, contractual protections on Pied Piper just might have been enough to force Hooli to back down from its threatened lawsuit.
P.S. The issue of disclosures to VCs (or other potential investors) that comes up in Episodes 10 and 14 opens a whole different can of worms. I may tackle that in another post.