Web Saver Case

Prepared by: Sam Sweitzer MGT 454: Business Law for ntrepreneurs Professor Wayne Beavers !pri" #$% &''# #( W)at possib"e *"aims *ou"d +iamondware ma,e a-ainst .ine or /e0t Step based on t)e emp"oyee non1dis*"osure a-reements t)at .ine and Sa"inas si-ned2 W)at% if anyt)in-% s)ou"d .ine do about t)is prob"em2 Fine and Salinas have a number of problems based on their non-disclosure agreement with Diamondware. First, under the General section, the non-disclosure agreement states, During my employment will not engage in any activity or investment. . . .that !a" conflicts with D# business interests, !b" occupies my attention so as to interfere with the proper and efficient performance of my duties at D#, or !c" interferes with the independent e$ercise of my %udgment in D#&s best interest. 'oth Fine and Salinas began loo(ing at the #eb Saver idea while under the employ of Diamondware. )n arguable case could be made that both of them did not e$ercise completely ob%ective and independent %udgment loo(ing after Diamondware&s best interests once the *e$t Step idea had been tossed around. Second, in the *on-Disclosure section, the agreement states that the employee will neither disclose nor use for any purpose other than wor(, confidential or proprietary technical, mar(eting, or business information. #hen Salinas agreed to %oin *e$t Step, he prompted the founders to act +uic(ly. ,is basis for this was prior, confidential (nowledge that Diamondware was in the process of developing similar software. -his is a clear violation of confidentiality.non-disclosure. -hird, Fine and Salinas are both sub%ect to the assignment of inventions clause in the employment agreement. -he agreement states that any invention will be assigned to Diamondware which, , solely or %ointly, may conceive, develop, or reduce to practice during the period of time am in the employ of D#. /ne e$ception to this clause appears as subsection 0c& which allows the inventor to (eep possession of the invention if it does not directly relate to Diamondware&s business or to the actual or demonstrably anticipated research or development of D#. 1learly, the #eb Saver program belongs to Diamondware. t was conceived of while Fine was still a part-time employee. #eb Saver is undeniably related to Diamondware&s anticipated research and future business development. Fourth, the employment agreement contains a non-competition clause. )lthough this will be difficult to enforce in 1alifornia, the length of two years still precludes Fine and Salinas from competing against Diamondware. Finally, the no-raid, or non-solicitation clause has also been violated. 'y inviting Salinas to come %oin her at *e$t Step, Fine effectively raided talent from Diamondware. Fine has a number of remedies available to her, but most of them will probably cost her partial ownership of *e$t Step. Fine and Salinas have clearly violated the non-

disclosure covenant, the no-compete clause, the assignment of ownership of inventions clause, and the no-raid clause. ,er best solution would be to trade e+uity in *e$t Step in e$change for a transfer of all rights to #eb Saver&s technology from Diamondware. Fine may be able to do this for as little as 234 of e+uity, but a ma%or interest will probably be needed. Fine and Salinas should also return all documents or dis(s to Diamondware. -hey should ma(e sure all Diamondware related information is deleted from their personal and business computers. Finally, with regards to higher other employees from Diamondware, Fine should be very careful. 5ather than informing employees she was leaving Diamondware to start her own firm, then soliciting their future help, Fine can simply leave a phone number if other employees wish to contact her. -his would preclude the anti-raid clause. &( W)at are t)e prob"ems t)at /e0t Step fa*es wit) respe*t to t)e prote*tion of its inte""e*tua" property domesti*a""y and abroad2 W)at% if anyt)in-% s)ou"d .ine do about t)ese prob"ems2 Domestically, *e$t Step must be concerned with brac(eting of patents by competitors. 'rac(eting occurs when a competitor systematically obtains patents for improvements on an original patent issued to another firm. #ith the speed of development so bris(, a larger, more powerful competitor could easily brac(et #eb Saver. nternationally, *e$t Step has made a grievous error by not pursuing patents in foreign countries. 6ost countries will not grant a patent after the invention has been publicly disclosed. Since #eb Saver has now been launched, patent protection in any country other than the 7.S. has essentially been lost. -o combat these problems, Fine must +uic(ly launch a newer version of #eb Saver. 'y doing so, she will be able to capture patent protection for the improvements on the original version. Fine should also file for patent protection in the 7nited States, with the 8uropean 9atent /ffice, and in any other country in which the product might be used. :uic(ly releasing a second version of #eb Saver would also prevent competitors from possibly brac(eting improvements on the original program. 3( W)at prob"ems does /e0t Step fa*e re-ardin- t)e *"aim of trademar, infrin-ement re-ardin- its domain name2 )lthough DocuSave corporation has a trademar( on the word saver, it is +uestionable whether *e$t Step&s use of www.saver.com infringes on this. DocuSave is in the data storage business. *e$t Step is in the software development business. t is doubtful that the goods or services provided by these two firms are confusingly similar. -he li(elihood of deception or confusion seems low. Federal law also protects a firm which owns a highly distinctive mar( from dilution or tarnishment, even if there is no li(elihood of confusion; however, this does not appear to be the case in this instance.

Finally, the word 0saver& most li(ely does not fall into the category of inherently distinctive mar(s. 0Saver& seems to be suggestive or descriptive in nature. -his may wea(en DocuSave&s argument of trademar( infringement. 7nless this trademar( has been so widely used as to be un-associable with any product other than data storage, multiple uses of 0saver& will li(ely be possible.