I have been through a very similar situation as a co-founder, investor and board member of an early-stage technology company. I cannot tell you what you can do, but I can tell you exactly what we did in this situation.
I was involved with an early-stage software company that had several contract software developers. At some point, one of these contractors left the company’s service and about three months later, publicly announced that he had launched a competing company that delivered almost exactly the same services that our company delivered, using what had to be very similar software.
It was obvious to the co-founders of our company that this ex-contractor had stolen the code and launched a competing business. The board of directors on which I served voted to assign our attorney to pursue the matter.
Our attorney sent the ex-contractor a letter demanding to know how he had ended up in three months with technology that appeared to be identical to the company’s while it had taken him and the other developers more than a year to develop our system.
He responded that he’d simply been able to start from the beginning and re-write it anew and much faster because he was a genius.
I am not kidding.
After further demands from our attorney, this ex-contractor hired legal counsel and we ended up in the white marble conference room of his high-dollar downtown law firm with our lawyer, our CEO and our board of directors. And we were steamed.
We laid out our case in a few simple points: The former contractor’s statements about his intelligence not withstanding, we did not find it plausible that that he had re-written the entire system in three months. We believed that something dishonest was afoot and we were happy to take the matter up in court and begin discovery. We also believed that a detailed comparison of his code to our original code by an independent third-party examiner would be a necessary part of discovery.
His attorney consulted with him briefly and then had the audacity to suggest that since a third-party examination of the code might be expensive and time-consuming, that maybe we would just prefer to reach a settlement with him.
As one of the investors, I immediately told his attorney that we would rather shine some sunlight into this dark hole and that I would be happy to pay for the comparison of the code in addition to funding the court filings and discovery process.
This visibly upset his attorney and he quickly left the conference room with his soon-to-be-former client in tow. It was clear to us that the ex-contractor had misrepresented the strength of his case to his attorney and that standing up a real fight had not been part of the plan.
After an additional phone call and a deadline for response, we soon received a letter from the ex-contractor’s attorney offering to cease using the code in question in exchange for an agreement to drop the matter.
In our counteroffer, we demanded all the assets and full ownership of his company in exchange for not pursuing damages and our legal fees.
We ended up owning his company within a few weeks and then we fired him from it.
A few important notes:
I am not an attorney and this is not legal advice.
You cannot go around threatening people with lawsuits, even in this situation. We went through a specific process with an attorney who wrote the appropriately worded letters to the ex-contractor’s attorney.
Our confidence, unified front and expressed willingness to spend whatever it would take to win the case were important contributors to our victory.
There was no ambiguity in our contract about who owned the code that the ex-contractor had written. The company owned the code.
There are several sneaky things that this ex-contractor could have done to make this a more difficult situation for us. He could have waited a year to launch his competing company. He could have kept it as a stealth company and only quietly pursued customers for a long time. etc. He thought to do none of these things.
We were fortunate that the former contractor hired smart, respected legal counsel who quickly wanted nothing to do with his case and who knew he could not pay for a protracted legal battle. If he’d hired someone cheap and unscrupulous, we still would have won, but it would have been a longer and maybe uglier fight.
Our original agreement with the contractor did not stipulate mandatory mediation in these kinds of disagreements. We were free to go straight to federal court with the matter.
Finally, I am well aware that our adversary might have been able to turn the entire thing into a lengthy mess and kept us tied up in court for months or years if he had decided to spend more money with attorneys. I am grateful that his attorney, our aggressive discovery plan and a high hourly billing rate prevailed upon him not to engage in a costly court battle.
