Freelancers: NDAs and business ideas
I've been working as a freelancer for a while with a strong eye on using my experiences to discover problems that can be the seed for starting a SaaS business.
I recently uncovered a potentially exciting opportunity through my work with one client. A set of related problems they have appears to be something that's likely to be causing an issue for a number of businesses operating in the same broad industry. This needs proper validation, but it seems to represent a compelling enough opportunity, one that would warrant the effort to validate.
Problem is that, through my prior naivety, I signed a crazily broad NDA with this company (a startup) that intends to protect literally everything I've learned through working on their business. Even though practically all the ideas, relating to solutions for the problems in question, have come from me, the client believes the intellectual property is theirs.
Whilst solutions to these problems would enhance my client's quality of service, the problem domain is still not their core business. In fact, the problems they have are as a result of issues with a third party that they - and many others - depend on already. So, broadly speaking, anything I tried to build would be a competitor to that third party, not my client.
I realise it's my fault to have ended up in this situation where I've essentially blocked myself from exploring this problem domain. It's frustrating because it would seem like such a natural opportunity to spin up a business to provide a productized solution to my client's problems, rather than fix them as part of my freelance work. Such ways of doing business seem common and legitimate.
I'm wondering if others here have found themselves in a similar position? And do others here have advice as to how to make sure you sign freelance contracts/NDAs that wouldn't restrict you from opportunities like this?
It seems so common to hear indie hackers finding their ideas through freelancing work, so I want to understand how this can be done without coming up against a brick wall of intellectual property ownership challenges.
“Even though practically all the ideas, relating to solutions for the problems in question, have come from me, the client believes the intellectual property is theirs.” What did that conversation go like? In person? With a founder? Their lawyer?
The ideas have all been things I've talked informally about
Personally, if it were me, I would leave it six months, see if they implement it, and if not, get something released.
I would think it very unlikely that the company in question would attempt to productize these ideas themselves, at least not in the foreseeable future. The only main exception being that, if their primary business fails, pursuing these ideas could be a pivot opportunity, in theory.
The issue with this particular company is that the founder has put considerable amounts of his own money into his venture. He's said himself that this means he feels morally entitled to own any ideas that spawn from trying to make his primary business idea work. His view is that his financial sacrifice means that all ideas are the product of his investment and thus he should own the IP entirely in case he wishes to use them for a pivot.
I do sympathise with his viewpoint, the thought of losing a lot of money will make people feel pretty paranoid. However, starting a business is a risk, and you have to accept that risk. Innovation would grind to a halt if companies could legally enforce the sort of broad protection my client believes he's entitled to.
The best solution, with zero chance of backfiring is go to your employer, tell them you have a plan to do so and so and you're willing to give them some sort of royalty for it (do not fix on this right away - as they would try to). Explain them that it's a never happening opportunity for them as they don't have the technical skills required to build it and also didn't identify the opportunity themselves. Make them agree on this somehow, sign papers on your way to a successful SaaS business. P.S. be a little decisive but know where it ends credibility. Good luck
Thanks for your advice.
My general feeling has been that I'd be perfectly happy with the sort of royalty arrangement you describe. The point for me is that I'm not trying to screw them over or steal their primary business - I just want to build something that would help them improve things for their customers. Thing is, whilst I think the NDA isn't enforceable (far too broad), there's a human factor in this as well. Up to now, I've got on well with the founder of the company and I don't want to upset him. In that respect, I think the royalty approach is a fair compromise. It would show an acknowledgement that the problem was identified as part of doing work for his company, and, that, I feel is a fair gesture.
Unfortunately, just because an NDA may not be enforceable, it doesn't mean that it's not a problem to ignore it because, even the courts would not enforce it, it doesn't change the fact that the person who asked you to sign it thinks it should be enforceable! And, ultimately, I don't like upsetting people and I don't want bad feeling following me around.
I think you're in the right direction
I'm not saying it would be a good idea, but if I were in that situation, I'd quit working with them and cite their draconian, albeit common, approach to IP as the reason.
There have been several times people I was working with decided to suddenly spring non-compete or similar contracts on me. I've refused every time on the basis that they were overreaching and hampered my future growth. Twice, that's meant leaving a job that paid more that double the market average. I've never regretted it.
Interestingly, I just looked at the wording of the NDA again. It kicks off with:
" The Receiving Party understands that the Disclosing Party has disclosed or may disclose information relating to source code, product designs, art, business plans, ideas and other related concepts, which to the extent previously, presently, or subsequently disclosed to the Receiving Party is hereinafter referred to as Proprietary Information of the Disclosing Party. "
Having considered this again, I'm now starting to believe that this NDA does not, technically speaking, declare that anything that I disclose to the client would be classified as "Proprietary Information of the Disclosing Party". In other words, only what they share with me are things that I have to keep confidential.
It does go on to imply that I shouldn't be able to benefit from anything I develop that I couldn't have come up without having had access to the "Proprietary Information". However, the NDA also correctly says that any information that's in the public domain also can't be considered "Proprietary Information". The ideas that I've disclosed to the client myself were spawned off the back of an understanding of problems that others in the industry already know exist. I'm not aware of any genuinely confidential information that's been shared with me that relates to this SaaS product idea specifically.
Certainly, it's beginning to look more like this is far from being as cut and dry as I first thought. My general feeling is that the most amicable way to address this situation would be to agree to a deal whereby the client does have some minor stake, whether that be limited equity or some kind of royalties agreement. Whilst that may not be legally necessary, it would still feel like the most ethically progressive approach to avoid any bad feeling.
I do know a few people who have successfully done that, but in every case it was after they'd already violated the agreement and were making money so it was essentially "found money" from the point of view of the employers (who then threatened to sue). The stake didn't end up being that minor of a cut though.
I sincerely doubt they'll budge, but if you can get them to an agreement up front, it will probably be a better deal and lead to fewer bad feelings.
Certainly, it's very unlikely that I'd pursue this without having got a formal agreement. At the end of the day, my goal in life is not to set out to upset people and, in this case, it doesn't feel worth consciously pursuing something that I know could lead to ongoing tension.
It's frustrating, sure. It's great when you feel you come across a genuine opportunity, and even more so when it happens that the problem domain in question is something you feel passionate and motivated about. But it would be rather defeatist of me to think this is the last time I'll ever find something like this!
Whatever the outcome, this feel like a good old learning experience. It's funny that I've always worried about NDAs, but was never able to apply genuine foresight when trying to get my head around specific terms and language. Now that I've actually encountered a scenario like this one, it's a lot easier for me to grasp what I should and shouldn't sign up to. This is experience I can carry forward with me from now on.
This comment was deleted 7 years ago
Thank you for your very informative comments. This is super useful stuff.
Unfortunately, there are a couple of key factors at play here.
A lot of what's going on here for me is a learning experience. I feel like this whole situation gives me a clear understanding of what I should and shouldn't agree to in freelance contracts. Now that I've been bitten, I'll know better for next time how to protect myself.
In a reply to another comment here, I made the point that, although I don't think there's any chance the client could actually enforce anything over this, the difficulty is that it doesn't suddenly make it all ok. The person who wants to enforce it - but can't - is still going to feel like they're being screwed over and I just don't like pissing people off. Starting of a SaaS business under such circumstances would feel rather unpleasant, if I'm honest.
I have already made it clear to the client that I will not work on anything related to this problem domain under the existing terms I've signed (contract/NDA). I'm not contracted specifically to work on this stuff. On that basis, it's really up to him whether he wishes to keep me on as a freelancer to work on other parts of the business not directly linked to the problem domain in question. If he wishes for me to be the one to solve these other problems, then it would have to be as part of him subscribing to those features via the SaaS that I'd build.