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View Full Version : Important Question Need Answered - Incorporating a New Business after Exiting Another



randombizguy
10-21-2012, 04:40 PM
I exited a business around four months ago due to partner problems and would like to now start my own operation in a similar field. The previous company was in a field that involved a software database be created to analyze corporate billing for their telecom accounts - both wire line and mobile (can't be too specific).

The corp I'm looking to start would offer a similar service, however would be different in a variety of ways and would also be built without directly copying anything that I have intellectually from my previous role. The new corp would have some similarities as far as the solution, however would be built from the ground up.

We have a unanimous shareholder agreement in place for the corp I had been previously part of (I was an equal shareholder - all minority shares @ 25%). My concern is that the USA has a clause in relation to confidentiality and states that no officer shall divulge any information regarding the business, or its finances, affairs, dealing and any trade secrets of the company including trade secrets, designs, methods, etc. I had them remove the non compete clause, as it would ban me from the industry for 10 years. The only non compete currently in place is in regards to going after existing clients of the corporation for a period of 3 years, which I wouldn't do.

If I start his new corp, what is the likely hood I'll be sued once they find out? If I were to be sued, they would obviously sue for damages, but would it be an amount that could potentially shut be down? If I want to be sneaky, could I find a partner and register everything in their name and act as employee for the time being?

Seeing as several big corps sue each other all of the time over IP, patents, etc I don't see this being any different. I would however go in to the new corp without the intention of directly copying their solution. They also don't have any patents or really proprietary technology, as several other companies offer a similar product/service and ours was created based on a couple of them in market ironically enough, so I don't see them being able to prove that their solution was that unique and not based off others in market.

Any help appreciated. I want some advice before investing capital. I will likely sit down with a lawyer here, but want to know whether or not this is a waste of my time. I was bullied out of the other co and know that's its a profitable market that I want to be a part of, just without idiots.

Freelancier
10-22-2012, 08:11 AM
If I start his new corp, what is the likely hood I'll be sued once they find out? If I were to be sued, they would obviously sue for damages, but would it be an amount that could potentially shut be down? If I want to be sneaky, could I find a partner and register everything in their name and act as employee for the time being?

Likelihood of being sued = high. Even if they don't have a case, they might still sue you to deter you. Doesn't mean they'll win, I'm not making any judgment on that... but there's a good chance you'll get sued.

Damages = whatever they could get, because they would claim every bit of revenue you made was based on their trade secrets. Whether that's true or not will be up to judge and jury... or settlement.

Even as an employee, you would be subject to the same scrutiny concerning trade secrets of your former company. And if they felt you were giving away their advantage in your new position, you and your new company would come under scrutiny.

The real questions are: "what's a trade secret? Did they take affirmative steps to protect those secrets (such as clearly identifying them when they passed into your hands and reasonable steps to prevent them from being public knowledge)?" Obvious stuff is not a trade secret. Anything already being done in the market by someone else is not a trade secret. Whatever financials are not reported to anyone outside the company is likely going to be considered a secret. You'll do well to talk with an attorney that deals in IP and these kinds of contracts.

randombizguy
10-22-2012, 01:56 PM
Thank you for the reply. Considering their solution was based entirely off of another (almost verbatim), I don't know if they'd risk a lawsuit that may expose them as well. That being said, knowing them, they will likely sue to deter me.

My strategy would be to keep it as quite as possible. By the time they find out I'll at least have some cash on hand to protect myself and swat off a lawsuit that likely wouldn't stick in court.

I guess I have to consider whether or not I want to take on the stress as well and potential negative PR that could come my way as a result. I'm currently employed again and having a hard time not having more control. My Entrepreneurial background isn't going away.

It just doesn't sit right with me, as one of the Directors built our entire solution based off of another company whom he'd previously been employed and the industry is a cash cow. I create my solution to be unique, however would be in the same market.

Business Attorney
10-23-2012, 06:18 PM
Predicting whether someone will sue is guesswork. If you are not going after their customers, as you said, then my guess is that they would not sue unless they think you also stole the software. If you make it clear that you are creating your own solution, and are not using your old company's confidential information, I suspect unless they have a lot of money to throw away that they will leave you alone.

As a general rule, courts do not like restrictive covenants. For your former company to use a confidentiality agreement to essentially keep you from competing would be a hard sell for most judges.

Of course, you should consult an attorney who is familiar with the laws of your province and who can read your agreement and ask pertinent questions to get legal advice that is specific to your facts.

randombizguy
10-23-2012, 06:32 PM
Predicting whether someone will sue is guesswork. If you are not going after their customers, as you said, then my guess is that they would not sue unless they think you also stole the software. If you make it clear that you are creating your own solution, and are not using your old company's confidential information, I suspect unless they have a lot of money to throw away that they will leave you alone.

As a general rule, courts do not like restrictive covenants. For your former company to use a confidentiality agreement to essentially keep you from competing would be a hard sell for most judges.

Of course, you should consult an attorney who is familiar with the laws of your province and who can read your agreement and ask pertinent questions to get legal advice that is specific to your facts.

Thank you and I agree fully. I still think that they would likely sue, as they do have some serious cash flow now and would likely try to deter me in the initial stages, which is why its critical to keep it quiet for as long as possible.

The USA isn't of a lot of concern, as there's nothing sticky in there, other than not using processes, technology, etc. Considering I'm developing an actual propriety product (something that they didn't even do), I highly doubt anything would come out of a lawsuit, other than hopes that I'd settle.