What if your cofounder decides to leave your startup and start their own? What if it’s a competitor? And what if it uses some variation on the same idea at the heart of your original company? 

Is that legal? How can you prevent it? How can you get away with it?

I’d like to address each of these in turn. First, is it legal?

Intellectual Property 101 for Founders 

Intellectual property is a whole legal discipline dealing with ownership rights in ideas. When you’re talking about copyright, trademark, and patents — all those are types of intellectual property. But there is also such a thing as confidential information, including trade secrets, which are not registered with the USPTO but are still protected by intellectual property law. So:

Whether your cofounder’s actions are legal depends heavily on two questions:

(1) Is the idea protectable under the law?

And

(2) Does the idea belong to the company or the individual?

So, first things first: Is your business idea protectable under the law? The best argument for protecting your idea is that the idea is confidential information — meaning it has commercial value, it’s not in the public domain, it is reasonably protected, and it was communicated to others in confidence. Those last two factors are going to be important for founders hoping to protect their idea.

Second, does the idea belong to the company or the individual? This is tricky. If founders never officially “hand over” their ideas to the company, those ideas may still be the property of the individual founders. If the idea was developed through contributions from multiple people, all the contributors potentially have some claim on the value of the idea. If you never took formal steps to assign founders’ IP to the company, it will be an uphill, and likely losing, battle to keep your ex-cofounder from starting a direct competitor. 

So, Question #1: Is it legal for an ex founder to take your business idea?

Maybe. If you never took formal steps to assign founders’ IP to the company, it will be an uphill battle to keep your ex-cofounder from starting a direct competitor.

In Part II:
We’ll cover some steps you can take as a company owner to better protect your intellectual property.