My first instinct is to congratulate Shred for standing up to the big bully. That was really almost what I posted.
But pick apart Shred's note, and really it's an emotional appeal based on two ideas:
1. That the sole test of stealing ideas is source code that has been copied verbatim.
2. That the only possible secrets of Smule are features implemented in released products.
These are pretty weak legs to stand on. They're actually preposterous.
Lawyers will tell you that it's really hard to prove theft in court without a smoking gun like "stolen source code", and the chances are, if they've stolen ideas in other ways, they will probably get away with it.
Almost certainly, Shred's lawyers are playing a key strategy role in this PR campaign.
So my advice is to be wary of emotional appeals from either side of litigation. We don't know what happened, and we learn less than we think from these notes.
ps. Yes I read the remarks in Business Insider too. I'm not advocating that Smule is the innocent party here. Most likely this is some bullshit pissing contest with 0 innocent parties.
> You compare a 100-person company with 10, 30, 40 million dollars in the bank to a two-person startup. If it goes to litigation, if we're wrong, we'll win.
> Right? We'll win. We'll put a giant law firm on it and we'll do all of the discovery and we'll do all the depositions and we'll win. And if we're right, we'll still win.
Pretty much no matter how you slice it, saying "even if we're wrong, we'll win" because of money in the bank sounds pretty awful.
I wonder if it's possible to optimize the cost differential. (probably not for a 2 person startup, but maybe a little bigger). But once it's terminal, clear you can't win, just dump all the money into making lots of specific, esoteric claims that require Giant Law Firm to spend hundreds of hours researching and responding to.
Loser pays legal fees, but if i can get you to spend an order of magnitude or two more than my dying company is worth, well, that's the kind of flameout i could take some satisfaction in.
edit
Now that i think about it a bit, contacting the oppositions' customers and asking about their record retention policies seems like a great way to go. not a subpoena, just several repeated enquiries, an email, a letter, follow up with a phone call or two about about how do you store records, how many records might you have about opposition company, who are the employees who interact with the opposition company. Hit the VP's of HR, Accounting and whoever does legal.
You could probably get some really nice targeted facebook advertising for that set of people, "been scammed by x? call us"
The first or second episode sets up a legal battle, and the main character basically points out his company's staff lawyer to the opposition and says something to the effect of "We pay him $X, you can put hundreds of lawyers on this suit, we'll just have him."
In the code comparison, the 3rd party will also be able to look at methods (in addition to code copied directly). We're more than happy to include proprietary methods in the review.
On stealing "ideas," do you have some advice here? Smule has never specified what ideas they think we stole. What do you think is our burden of responsibility in proving we did not steal ideas our opponents won't even specify?
> On stealing "ideas," do you have some advice here? Smule has never specified what ideas they think we stole.
In their initial complaint filing [1] they mention "Synch Technology" (automated video/audio synchronization) several times.
"[...] specifically including the development of Smule's proprietary artificial intelligence technology that analyzes audio and video files and through the use of algorithms, automatically synchronizes video footage to audio files in a manner that results in a pleasing and and appropriate matching of the action and the music"
"[Shred] which purports to have developed a product that detects and segments key points of unstructured video and algorithmically synchronizes these videos to music in the same or similar manner as Smule's Synch Technology."
Some of the quotes and actions by your former boss leave a bad taste in my mouth, but if the AV synchronization is indeed similar to their own or developed using their resources, they will have a strong case that you've breached your contract.
I've seen this kind of stunt before, in the SCO v. IBM lawsuit. Your defense is to get the court to require the other side to state specifically what they think you stole, or to drop the claim.
The law is on your side here. Vague claims aren't a part of a valid lawsuit. "Failure to state a claim actionable at law" may be the phrase you need.
"Ideas" isn't a form of IP that can be stolen. Did you patent anything? Have you appropriately protected these ideas to qualify for any sort of tradesecret protections?
(ps. Don't answer. This is the sort of thing to be discussed with an attorney behind a closed door.)
That's not quite accurate: "Ideas" cannot be patented or copyrighted, but they can be protected by contract.
The distinction is who the right to the idea is enforceable against. A patent represents a government enforced monopoly that bars anyone from using the specific intellectual property, whereas a contractual right to an idea can only be enforced against the other party to the agreement.
In California, the seminal case is the Supreme Court's decision in Desny v. Wilder, which held that a screenwriter could enforce a studio's promise not to use one of his ideas without his consent. The Court's reasoning was that while a party is free to come up with its own ideas, the disclosure of someone else's idea confers a benefit. Federal courts have addressed this issue a lot in a line of cases holding that Desny claims are not preempted by the Copyright Act.
I haven't been involved in any cases where the alleged theft of an idea involved an employment contract, but I see no reason why the same principles would not apply. Logically, an employer should be able to disclose propriety ideas to its employees without fear that they will be stolen, regardless of whether the ideas are sufficiently novel to qualify for an exclusive federal monopoly.
I said that ideas were not IP, not one of the recognized forms of intellectual property rights. Everyone is of course free to invent new concepts via contract, but that only creates obligations between the parties. Any dispute will be governed by contract law, not IP. Nobody outside the agreement will be bound.
The classic case in this area is Warner-Lambert v. Reynolds 178 F. Supp. 655 (1959). (It's about a contract covering the formula for Listerine)
Some "ideas" are, if they qualify as trade secrets (think Coke's formula). Other's are free to reverse engineer those ideas, but a former employer/vendor/customer exposed to those ideas under an NDA can come after you for misappropriating their qualifying ideas.
> On stealing "ideas," do you have some advice here?
IANAL, and esp. I am not from the US so I don't really have a good grasp of the spirit of the law there (except that from the outside it is constantly surprising and scary!)
however, here in the UK i have some experience, esp because i want to ship software which directly competes with my previous employers in the future...
one thing to remember is that working somewhere enables you to gain knowledge about their workings and that the employer allows this at the time for its own benefit and not for yours.
its very difficult to prove/disprove if this happened though, and the contract signed when working there might turn out to be critical. whilst non-compete clauses are frequently so poorly written that they can never be enforced, the precedent here (in the UK) is that if you want to be safe and be able to point at past cases in defense then you do not compete for two years, poach employees, nor compete on your former employer's doorstep geographically. afaik there have been zero successful claims by employers if these criteria have been met...
remember this can be anything, from having beers on friday, to using a particular software for time-keeping - all the way through the the source code that you are so willing to allow to be searched. if you want better luck with this approach of being open - open every thing up, not just the code, but the working practices, software used, internal hierarchy, which cleaning company you use... everything.
on the other hand i know plenty of companies started by (naive) people who left and started immediately with their buddies from an old job and directly competed with their former employer within a year, using knowledge and skills that they improved on the job. they meant no harm and felt that what they were doing was fair, but imo they took an incredible risk by not researching what has happened in the past with such cases, and are lucky to have gotten away with it.
i hope this goes well for you. be ready for the media and naive readers to not read the detail of what has been written, and instead to slam you for nicking code to start up a company.
Relevantly, Shred Video doesn't even compete directly with Smule for customers. Smule is building a network of karaoke singers and aspiring music enthusiasts to create music together. Shred Video is building technology to help athletes and adventure travelers make movies.
For example, it's unimaginable that a user would consider Smule apps and Shred Video to be competing substitutes that solve a similar need. She'd literally be choosing between "do I want to use this Smule app to sing karaoke songs or play guitar with, or do I want to use this Shred Video app to make a movie from my snowboarding footage?"
Why would you need to go to these lengths (waiting 2 years and competing in a different geogrpahical region)? What have you done wrong by making a competitor to your previous companies product? I ask this because I am thinking of doing something similar due to the fact that my employer is extremely incompetent. I am the only developer of a project that I helped take from no revenue to hundreds of thousands of dollars revenue but that should be making millions of dollars revenue. Unfortunately, I am micro-managed and often just have to implement the ridiculous ideas of my boss.
If I made a competitor, it would obviously share some of the same ideas as the current project. I mean, every social network has an "add friend" function, for example. Some things are just the right way to do things, or inherently part of the business domain.
If they started patenting all of my ideas, I would expect to actually be paid a decent salary.
<IANAL>
It depends mostly on non-competing clause in your contract with them. Unless you steal their code (even if you wrote it, it's theirs!) I don't think they can sue you for using "their" ideas.
</IANAL>
"and you guys can all be friends". What world are you living in? This man is trying to destroy their livelihood. It's almost like a direct physical attack on them and their families.
What do you mean by "legalistic"? Isn't that the right type of defense, when you are dealing with law?
Say there is another case with all the facts are exactly as stated: goliath vs. little guy, and you are the little guy. What would you have the little guy do differently?
Copyright - Source code that has been copied.
Patent - Monopoly on an idea.
Trade Secret Law - N/A. They are former employees.
Non Compete Agreement - Agreements in restraint of competititon are void in California.
Shred's story sounds credible to me. The fact that Smule offered to make this lawsuit go away in exchange for equity sounds a lot like extortion to me. Why would they settle for a % of a company when they already own 100% of the secret sauce that was stolen? If their claim is as baseless as this article [1] suggests, RICO or anti-SLAPP laws should definitely apply.
>Trade Secret Law - N/A. They are former employees. Non Compete Agreement - Agreements in restraint of competititon are void in California.
I would respectfully disagree with these assertions. Trade Secret is not void just because someone is a former employee. You don't get to walk out the door with the secret recipes. And there are many exceptions to california's ban on non-compete agreements. Non-compete agreements are also very different than non-disclosure agreements.
There are two ways to 'win' a civil suit. Counter their allegations, or assert your own counterclaims. It may be possible to assert that they have taken your trade secrets.
Talk to lawyers. In offices. Not online. Sign a client agreement. Pay them money. Beyond that, you cannot get any reliable advice from anyone here.
And here's the sad truth. You compare a 100-person company with 10, 30, 40 million dollars in the bank to a two-person startup. If it goes to litigation, if we're wrong, we'll win.
Right? We'll win. We'll put a giant law firm on it and we'll do all of the discovery and we'll do all the depositions and we'll win. And if we're right, we'll still win....
(Note: discovery can be very expensive, and depositions tend to take a lot of time in preparation and the actual deposition.)
Which suggests the defendant isn't entirely insane to try to win this in the court of public opinion, a worst case apparently not imagined heretofore.
You don't get to walk out the door with the secret recipes.
Indeed, but in general in the US you have to go to real efforts to create and keep secret such recipes. And I find it utterly amazing that California law, last time I checked, doesn't consider customer lists to be protectable trade secrets for salesmen (!!!).
This is SUPER wrong. Customer lists were one of the original trade secrets under common law, and they still are trade secrets--as long as they're kept secret.
The case you cited in your last link could have been decided after I read whatever it was I read. It could be that it's pretty hard to make and keep such lists as trade secrets, or maybe what I read referred to just a list of customers with all that other information, but I remember it being pretty definitive, and, generally agreeing with your initial points, startling.
Lol, accepting your 'tradition' argument (I don't) any such traditions would be overturned by the very statute you cite.
"3426.8.This title shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this title among states enacting it."
That's the law. It overturns everything prior. All commonlaw interpretations (the closest legal thing to tradition) before it are void in the face of this new law.
I admit, my attention was divided earlier between Hacker News and my day job as a California IP litigator.
Here you go:
Yes, the UTSA statute is "the law". But it's not the ONLY law. Where there are gaps, courts look to case law, just like in any other area of law. And the UTSA was drafted with the old common law in mind, continuing much of it, but codifying it. That's why courts DO look at the older common law to inform their interpretations of the UTSA.
This is from page 1 of the Prefatory Note in the 1985 final draft of the UTSA:
"The Uniform Act codifies the basic principles of common law trade secret protection, preserving its essential distinctions from patent law."
With that, I'm done with this thread. We are way off-topic since the lawsuit in the original post doesn't even have a trade secret claim. I'm also done dispensing free legal advice for the night.
Note the words "can qualify" and "may include". It's not a matter of secret keeping. It is a fact-specific analysis turning on the nature of the product and the specific information on the list. Whether or not one could theoretically gather the information from public sources, sources outside the list, is also a factor. A simple list of buyers for a simple product may not qualify regardless of attempted protections. Not all lists are protected. Imho, given the various rules, I would say the default in California is still non-protection absent exceptional circumstances.
I totally dismiss the linked Fenwick PFD. According to my pdf reader that document was last updated on "Tue 05 Apr 2005 04:49:08 PM PDT". It's totally out of date and therefore untrustworthy as to specifics of current CA law. I'm a little shocked that it is still on their server.
California trade secrets law has not changed drastically since 2005. If you have actual information to the contrary, by all means, point to it.
You're correct that there's more to it than just keeping something secret:
- It has to also be valuable because of the secrecy, so the number I'm thinking in my head doesn't count. But customer lists typically do have value because of secrecy.
- Trade secrecy can be destroyed if the secret gets out.
There's no reason to argue in the abstract. Here's how California law actually defines "trade secret" -- Civil Code 3426.1(d):
(d) “Trade secret” means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
I said the document was untrustworthy, not necessarily incorrect. It is too old to be relied upon. It's not a question of whether the material is accurate. Any lawyer advising a client would be negligent if he or she looked to such dated summaries of the law. They aren't worth reading given the many current summaries are available elsewhere. Now if the firm wants to reissue the document, then perhaps.
I'm completely onboard with california on that one. Customer lists are not secret. Each and every customer knows they are a customer. Certainly the tax man knows who is an isn't a customer, along with any number of credit cards companies and banks that might process orders. So the alleged secret isn't really kept in-house.
There was no "misappropriation" here. Employment does not qualify as "improper means". [1]
Just imagine for a moment the slippery slope this would create if companies were able to criminalize knowledge on the basis of prior employment. Literally any work process you performed could be considered protected IP. You could work one job and never be employable again.
Yes. That is reality. Talk to anyone in aerospace. Techniques developed for employer A cannot be taken to employer B. I'm not saying it doesn't happen, just that there are laws on the books to prevent it.
Imagine the slippery slope if former employees of Coke were allowed to take the recipe over to Pepsi. We wouldn't have any long-lived product lines. (That actually happened. Pepsi called the FBI)
For below: 18 U.S. Code § 1832 - Theft of trade secrets (the really really short version)
"Whoever ... knowingly ... steals, or without authorization appropriates ... or by fraud, artifice, or deception obtains such information ... shall ... be fined under this title or imprisoned not more than 10 years, or both."
In the case of your Coke vs. Pepsi scenario, would the recipe for Coke not be protected both as a trade secret, and under copyright?
On the other hand, I can't believe it'd be against the law for some employees from Coke to quit and start a company that manufactures soda (assuming they didn't actually use Coke's recipe).
For 'eternal' products like Coke I guess it's impossible, but for other still moving markets I thought a simple N-years NDA clause was enough to let ex-employee not screw you until you have enough head start.
sandworm101: That's a really interesting comment. It sounds very anti free market to me, but I guess I'm not surprised. I guess the only recourse for a founder led company in that situation would be to leave the US. Not necessarily a great result.
OT: Regarding the Coke/Pepsi thing, personally I think food manufacturers (I use the term loosely) should be forced to disclose what's in their products. Though I would strongly agree that this comment has nothing to do with the rest of our previous discussion.
Leaving the US would do little beyond increasing the cost of litigation and making said founder look more like a fugitive. Tradesecret law and IP law generally is pretty universal. And you can still get sued where the alleged theft/taking/wrong took place. A default decision (ie you don't show up) by a US court will be enforced in Canada, Europe or most anywhere else.
As for free markets, while IP law does create monopolies, the theory is that many protected innovations would never be brought to market without some promise they won't be replicated.
For below: Independent creation is not theft and so the laws do not apply. Copyright and patent bar independent creation, but not tradesecret. No doubt countless production secrets have been independently developed by competitors. When one trys to patent something, these come out of the woodwork as "prior art". But independence is a very hard burden to prove. Any communication from one firm to another, especially the movie a knowledgeable employee from one firm to the other, destroys any notion of independence.
It sounds like you agree with me then.
Techniques developed for employer A CAN be taken to employer B. [as long as they are independently created ]
If there is some nuance here that I'm missing, I'd like to know what it is. A finer understanding of this point is probably really important for anyone who works in science.
No they cannot be 'taken' from A to B. They must arise independently within in B. The fact B's technique looks very much like A's must be complete coincidence.
sandworm101: do you think those laws apply when someone reinvents something that was in their head, or only when documents were retained/copied/passed as in the Chung/Boeing case?
But that's exactly how it works. I have worked at a company that did a "clean room" reimplementation of a competitor's product. You cannot have anyone who was formerly an employee of the other company anywhere near a project like that. It's not that you will be prosecuted as a criminal, it's so that your company has some defense against being sued.
Or a bareknuckled way to take 10% of a company, or even just a signal to intimidate current employees.
I worked for a small ($30-$50m annual revenue) company sued by a giant ($47B annual revenue) company. The goal, which worked, was to drain my employer's bank accounts on $5+m of legal expenses per year to keep a superior but less expensive product out of market.
It's fair to plead for people not to read to much into this. But your suggestion that this is a "bullshit pissing contest with 0 innocent parties" seems ridiculous to me, given that a well funded company is suing a less funded company it doesn't compete with. You think that is the most likely scenario? Really??
It certainly seems like a reach to just assume bad behavior on both ends.
Which actually, is one of the more insidious outcomes of making absurd claims against someone, even if they're completely false. People naturally respond "well, no one would be crazy enough to make something like that up, so there must be some truth to it."
Most likely this is some bullshit pissing contest with 0 innocent parties.
Pissing contests do not usually include one willing and one unwilling participant. Shred's note is not just an emotional appeal because if they did steal ideas, it is an open invitation for Smule to state what they are.
How can ideas be stolen? They're not property. Source code is. Patents are. Ideas are not.
If Smule had explicit plants to do exactly what Shred is doing and the Shred people left specifically to exploit that idea on their own, then maybe they might have a case appealing to trade secrets or something. But if Shred is doing something different that just happens to also be related to video and music, but does that in a different way, not using any of Smule's algorithms, I don't see how they can possibly have a case.
Unless, of course, you accept that employers own the work experience of their employees. I'm sure some would wish to.
To add to this, as a software engineer, while thinking through Smule's AutoRap app and the Shred Video app, I couldn't help but think that they could both probably benefit from a similar method for detecting (or synching with) beats, chorus, etc. Even though this sort of audio posterization (I'm not sure what it's really called) is not entirely novel, it's probably a reasonably tough problem to solve. If I had to guess, I'd guess that this aspect is what Smule's case is based on.
FTR: I hope Shred Video wins, because, based on the Business Insider article linked herein, Smith seems to be, IMHO, a huge bully.
Don't you think this will be absolved with a review of Shred Video's code/methods vs Smule's code/methods? And isn't it telling that Shred Video is more than willing to submit to such a review, but Smule has not yet acquiesced?
That doesn't seem telling to me, because Smule is probably just listening to their lawyers. And their lawyers are probably advising them to just wait for court. That seems like the right strategy for Smule regardless of the facts of the case.
What do you mean by "right strategy" in this sense? Doing a 3rd party review of Shred vs Smule code/methods will give them a trove of relevant information if they intend to win on the merits.
In my understanding, refusing it is only the "right strategy" if your intent is to not have the case go to trial.
Try another point of view. If this review was done outside the case, then it would very likely have to be re-done later IN the case with expert witnesses who are disclosed to the other side through the formal discovery process. It's not crazy to want to avoid duplicating that cost. Also, they can challenge Shred's expert in court if they don't like who you pick.
And...I saw the court filings...you have a lawyer...stop talking to randos on HN for advice. :)
Exactly. Regardless of whether they are right or wrong, if their goal is just to win this case, it doesn't seem like it's in their best interests to have the case go to trial, if they think they'll win before a trial.
How can you steal an idea? There is little to no protection for ideas. More tangible information may have a lot of protection, but ideas are more-or-less fair game.
That's probably not even close to true. Without wading into the morass of what an "idea" is, a boilerplate employee agreement might list things like:
technical information, methods, processes, formulae, compositions, systems, techniques, inventions, machines, computer programs, research, business information, customer lists, pricing data, sources of supply, financial data, and marketing, production, or merchandising systems or plans
If your employer is working with a concept or idea and can tangibly tie it to anything like these (or any of a similar list of "artifacts") that employees had access to, then it's very dangerous for employees to start their own firms based on those concepts or ideas.
(I have no idea what's going on with Smule/Shred! Shred sounds very credible right now.)
"It would be cool to make an app that does X" <-- not likely protected
"Our marketing research shows that there is a $3B market for an app that does X" <-- likely protected, but needs some requirements to be a trade secret.
[edit]
Also, many states allow enforcement of non-compete agreements, and in some cases that may include areas the company is planning on entering at the time of your employ.
Almost all states enforce noncompetes, not that it's clear to me what noncompetes have to do with this.
I think you should talk to a lawyer before making assessments about how unlikely it is something is to be protected. Generally: safest course is to assume it is protectable.
I talked to a lawyer before starting this company and I was very surprised by how many pitfalls I hadn't even considered.
@aidenn0
> "Our marketing research shows that there is a $3B market for an app that does X" <-- likely protected.
-----
I don't see how even that would or should be protected.
I'm not a lawyer, but as I understand it, if you're under non disclosure, somebody shares an idea with you, and you use it, then you've stolen an idea. Or, if the idea is patented.
Enforcement could be another issue, depending on evidence.
Non-disclosure is just a form of contract. It doesn't itself protect ideas from theft. If they are valuable enough, or if the contract is not enforceable, then the person can still walk away with the material. They need to look to tradesecret law, that is IF any of their code qualifies for tradesecret protection.
The big if is in the relevant code:
"(d) Trade secret means information, including a formula,
pattern, compilation, program, device, method, technique, or process, that (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."
Reading stories from parties to litigation is like listening to a couple that just broke up discuss whose fault it was. You gotta read between the lines.
Of course, if one member in a couple has $40 million dollars and the other does not, and the rich one files a lawsuit against the other without even first talking to her, one might consider that the two are not equally culpable parties.
Didn't mean to imply anything about your particular situation. Just a meta-point. Litigants rarely think they're in the wrong--they view the situation through the lens of their personal narratives of what happened.
It's also really hard to prove the absence of theft, e.g., of things like trade secrets in strategy, customer lists, and financial models. The consequence is that even if you're in the right, you can spend several hundred thousand on legal fees before you can get out of a case.
Lexicographic analysis, I think it's called. Back at university, they would run checks against the byte-code (Java, woo) to find people who were sharing their source. Caught a few people out in the earlier years who thought changing variable names was enough to avoid plagiarism.
Genuinely curious for your legal counsel's take on you posting such an article publicly. I've always thought the prevailing wisdom shared by all lawyers was "don't talk."
Also, in this day and age of using services like Github for personal projects but having access to other repos, etc., using things like 1Password for work and personal things, how has the discovery process worked with everything?
I'm really interested in knowing to what degree someone should be paranoid. Are you potentially risking your entire business because you once checked your work webmail from a personal computer or checked a personal email account from a work phone?
One of the best ways to discourage bad behavior is to shine a light on it, which is why we're publishing our story.
The risk here isn't that your former employer actually has a right to your company under the scenarios you listed. It's that if they have the resources, they can bleed you in litigation before your case is ever adjudicated. It's like a form of patent trolling, they're using the process to achieve an end they'd never get in adjudication.
I'm surprised you can't just sue them on the basis that they keep bringing up fraudulent charges against you and wasting the legal departments rather valuable time? If something like this isn't possible, then our legal system is currently flawed. I'm not a law expert but that's just awful.
Depends on the company. PR is a proportional thing. If the CEO of a company is caught on video killing kittens that can kill 50% of a $100,000,000 company or 50% of $1,000,000 company. Public relations / branding is proportional in that way. Money on the other hand is slightly more constant, so in the two cases above it might be a 2 million dollar hit to each. A possible gamble to the 100 million dollar company but not to the 1 million dollar company.
Maybe if it were Oracle, but in this case it is another startup which runs in the same circles and benefits from credibility from a similar audience, even if only for developer recruiting.
IMHO, your legal counsel provides advice, but that's it. You're already sitting on the receiving end of bullying with an existential threat, so there's a strategic choice (talk/don't talk) with risk on either side.
As a founder who has taken on a legal threat from a big-corp before, know that bigger companies are in the habit of being bullies like this, because they get away with it far more than they should, and they might not even realize how stupid it is. Big-corp's lawyers are simply incentivized to rack up billable hours, legit or not.
But when you can make it clear to big-corp's strategic decision makers that there's far less upside than they expect (including that they have practically zero chance of winning anything), and far more downside (including that they will really look like idiots in front of their customers, their employees, future strategic partners, etc), big-corp usually calls off its lawyers and moves on to the next person on their hit-list. They're usually rational enough not to pursue negative-ROI activities for very long simply for vengeance. If the threat of going public isn't enough to make them back down, it's ugly, but you've got to follow through.
I'm not affiliated with them so my thoughts are my own. I'd wager this is a last nuclear option before they lose their company to the lawsuit. If they can manage to publicly shame the company suing them they stand a shot at keeping the company alive.
Typically lawyers hate posts like this because it's public record now what happened and if any of this isn't true and provable 100% it can hurt them, a lot.
There are some eDiscovery consulting companies like http://www.dcdatacorp.com that go out and do forensic capture for law firms before it ever gets to a courtroom. They try and determine access to digital systems best as they can on behalf of the firms that hire them.
Don't build a business on quicksand. Get a lawyer involved in formation to ensure your IP is clean and usable for your new venture. If in doubt. Scrap it all.
This is not a last nuclear option, and we're not in danger of losing our company to the lawsuit. Everything in the post is 100% true.
We did get a lawyer involved when we started Shred Video, and are 100% sure our IP is clean and usable.
It will take probably two years for the case to get fully adjudicated, and the legal recourse for preventing frivolous lawsuits like this is insufficient. Starting a startup is plenty hard enough without this kind of distraction, it's in all of our interest to dissuade larger companies from harassing startups in this way.
> It will take probably two years for the case to get fully adjudicated...
During which time many prospective investors, partners and customers won't want to touch you with a 10 foot pole.
> ...and the legal recourse for preventing frivolous lawsuits like this is insufficient.
To be honest, this doesn't look like a frivolous lawsuit, even if this goes to trial and is adjudicated in your favor.
Your post indicates that you and your co-founder quit your jobs at Smule to start Shred. In your post, you detail the differences between some of the technology behind Smule's products and your own, but it is clear that Smule and Shred are in the same general space as far as technology is concerned.
The intellectual property assignment agreements most employees sign cover inventions, processes, discoveries, etc. that are made or conceived of during their terms of employment. They often contain language referring to "the present or reasonably anticipated business" of the employer.
While none of this means you can't leave an employer to start a business in the same space, matters like this can be incredibly messy. If you believe that your defense will be successful because you can prove you didn't steal code outright, you are being incredibly naive. It's not that simple.
> Your post indicates that you and your co-founder quit your jobs at Smule to start Shred.
Are you insinuating that 2 employees quitting a company together and starting a company in the same "general space" is reasonable grounds for a lawsuit?
> If you believe that your defense will be successful because you can prove you didn't steal code outright, you are being incredibly naive. It's not that simple.
And that's to the shame of our legal system, and to the detriment of our country's economy.
> Are you insinuating that 2 employees quitting a company together and starting a company in the same "general space" is reasonable grounds for a lawsuit?
If a former employer has reason to believe that the employees misappropriated intellectual property or otherwise violated the terms of their employment agreements in doing so, it has every right to seek to enforce its agreements and protect its interests.
Like it or not, when employees leave to start a company in the same general space, claims of misappropriation are more likely.
> And that's to the shame of our legal system, and to the detriment of our country's economy.
How? If a source code comparison will not be dispositive of Smule's claims against Shred's co-founders, why would a court rely on a source code comparison?
From what I can see, nobody has produced the actual filings in this case, so we don't know the exact claims, but other comments indicate that Smule isn't just claiming Shred's co-founders stole source code.
In our case, we did not develop anything Shred-related (ideas or otherwise) while we were employed at Smule. So invention assignment is not at issue, because we did not moonlight on Shred Video while employed by Smule. I knew I wanted to build products for the GoPro audience, which is why I left Smule. Mark left for his own different reasons, and we only began prototyping on things that turned into Shred Video after he left Smule.
> In our case, we did not develop anything Shred-related (ideas or otherwise) while we were employed at Smule. So invention assignment is not at issue, because we did not moonlight on Shred Video while employed by Smule.
Please recognize that assignment is likely an issue because Smule will almost certainly try to claim the opposite of what you're claiming. It doesn't mean that they will be able to prove their claims, but you should at least be aware of the fact that there are two sides to every legal dispute and both parties have the opportunity to make their case.
If this isn't matter isn't settled, the legal process provides the means to sort it all out and you'll have the opportunity to evaluate the evidence supporting Smule's claims as part of the discovery process.
> If this isn't matter isn't settled, the legal process provides the means to sort it all out and you'll have the opportunity to evaluate the evidence supporting Smule's claims as part of the discovery process.
If they even make it through the discovery process without going bankrupt, which is the explicit, admitted goal of their opponent.
> If they even make it through the discovery process without going bankrupt, which is the explicit, admitted goal of their opponent.
No, it isn't. According to Business Insider, this is what was stated:
I'm fairly confident we will figure something out eventually, and this won't be a long-term problem. But I think they've got to face the music here. And we're going to have to figure that out unfortunately with a bunch of lawyers.
And here's the sad truth. You compare a 100-person company with 10, 30, 40 million dollars in the bank to a two-person startup. If it goes to litigation, if we're wrong, we'll win.
Right? We'll win. We'll put a giant law firm on it and we'll do all of the discovery and we'll do all the depositions and we'll win. And if we're right, we'll still win.
So it's not a great scenario. If you fork off a startup and there's IP overlap, it's just a big mess.
The Smule CEO doesn't at all suggest he's trying to put Shred out of business. Instead, he:
1. Seems to imply that a settlement is possible.
2. Laments the fact that this matter required legal action and that said legal action will put Shred's co-founders in a disadvantaged situation.
3. Acknowledges that this matter is the result of the fact that there seems to be some overlap between the kind of technology Smule creates and the kind of technology Shred creates.
Until Smule's claims are known in detail, it's premature to assume that Smule's action has no merit. Smule could be the good guy, or the bad guy. But lots of people here can't help but pick David over Goliath when very few meaningful facts are known.
The filing is public, and referred to in the lawsuit. I'll summarize here:
Smule has claimed we violated non-solicitation provision in our contract by recruiting each other to start a startup;
that we appropriated Smule's code or methods to build Shred Video (though they don't make any specific trade secret claims);
That Mark is guilty of fraud in his consulting relationship w/ Smule's engineers (this is detailed our post); and
We converted Smule's proprietary information into Shred Video (far as I understand, conversion is a fancy word for "stealing").
The "non-solicitation" claim is laughable, especially in California. The fraud claim is fraudulent itself, as the email record clearly shows Smule itself asked for Mark's help, and he was wholly transparent in the way he provided that help. Everything else comes down to whether we used Smule's proprietary code or methods.
When Smith says "I'm fairly confident we will figure something out eventually...unfortunately...with a bunch of lawyers," seems a reasonable interpretation that "a bunch of lawyers" is code for legal threats, and "figure something out" is code for us paying him (in equity or otherwise) to withdraw the legal threat.
I don't even think you realize what you're saying at this point.
I empathize with you. I really do. For what it's worth, years ago, I had to fight to regain control of a company I had started that was "stolen" by a former business partner. I was a twenty-something with very little money in the bank and my counsel was a local attorney. I sued a multi-millionaire represented by one of the top 5 law firms in the world. I was able to get what I wanted largely because my attorney gave me good advice and I listened to it.
I'm sure this is an emotional time for you but I would strongly recommend that you retain an attorney you trust before you do or write anything else.
Thank you for the clarification. That's helpful, having not had time to find and read the filing.
It would be helpful if you could link to the filing, for those of us interested to read it. I regularly read them when the case is interesting (e.g., Oracle v. Google). If the documents are public domain (with no public link), then presumably you could host them for sharing as well.
>I'm really interested in knowing to what degree someone should be paranoid. Are you potentially risking your entire business because you once checked your work webmail from a personal computer or checked a personal email account from a work phone?
You should be paranoid, but just checking your email isn't a big deal unless you start co-mingling secret information.
But under CA trade secret law, you can commit trade secret misappropriation without ever taking a document or file. Mind trade secrets are still trade secrets.
If your employer creates a new algorithm that nobody outside the company knows about. You can't recreate it from memory in your own company. As you can imagine, this gets into grays areas real quick. It's impossible to neatly distinguish between skills you learned at work and trade secrets you learned.
I'll leave the business advice to the businessmen, but I've seen several investment/buyouts killed because during an IP review it was discovered that the startup was in the same space as a previous employer.
Most IP cases are settled before going to trial. Public opinion is an important factor in persuading the parties to settle or drop the case. Going public could be a valid strategy in forcing the other side's hand.
"I'm not mad, I'm proud of you. You took your first pinch like a man and you learn two great things in your life. Look at me, never rat on your friends and always keep your mouth shut." -- Jimmy Conway, Goodfellas
I don;t think they passed this by legal. If they did, they aren't listening. Publicly airing dirty laundry while in the middle of a suit is a dangerous tactic. It doesn't take much to tack on new claims.
As a corollary, it doesn't seem from past evidence that YC is averse to being biased when it comes to matters like this, so take their stance with a grain of salt.
The only time I heard Jeff Smith was in Stanford Podcast[1]. I listened to every podcast on Stanford (DFJ Entrepreneurial Thought Leaders lecture series) and particularly remember Jeff Smith because I thought he came out wrong from the talk. His statement "Palantir is evil" because they hired a guy who smule was trying to recruit. Seriously you are giving a talk to inspire future entrepreneurs and use that to bad mouth someone who is not even your competitor?
PS: I have no relationship with Palantir. It just really bothered me that someone would use that opportunity to bad another company.
The name is a dead give-away. In Tolkien's stories, the palantir is a crystal ball which corrupts the mind of its user. At the least, the name strongly suggests that they lack a proper respect for the dangers of the technologies they're using.
I had a read of the article that was linked to from that Quora answer and I still couldn't glean 'evil' from that -- potential to become evil, yes; actively intending to do evil, not so much.
Back in 2000 (seriously!), I was introduced to a small group of guys in Redmond, WA. These guys were former Real Networks engineers, and had their original stock certificates in frames on the walls.
The product they were building was a cross-platform media player. It would stream music/video/audio/etc. and work on PCs and Macs. They had been in operation for just a few months, and had a great prototype in place. I interviewed with them and really liked their story. They followed up days later and invited me back one more time -- presumably to talk about joining.
A few days later I'm in my car, driving to their location. I actually have a cellular phone and it starts buzzing. I pick up (yes, nobody cared about driving & talking in 2000) and it's my friend who introduced me to these guys. The conversation goes like this:
Me: Hello
Friend: Hey, what are you doing?
Me: I'm on my way to meet with those guys again.
Friend: Are you there yet?
Me: No. Why?
Friend: Turn your car around, and don't drive near that place.
Me: Why?
Friend: Their place is being raided right now. Cops everywhere.
Me: What?
Friend: They are taking away everything.
Me: (turns car around, never speaks with them again)
Real Networks had filed an injunction and the company was raided on charges of stolen intellectual property. I never learned the details, but as my colleague told me later -- he's pretty sure most of what they were doing had been built at Real Networks.
If they literally stole the assets (source code), that's one thing, but if they just re-used their technical skills and experience - this seems completely legit to me. A lot of successful startups/companies/projects started that way - key people had previous experience in a similar field, in some big enterprises.
This is an inherently tough situation for the founders but not unwinnable, provided:
1. The code is as they say it is, entirely independently developed as opposed to code that infringes the employer's copyright because it has been stolen.
2. No moonlighting took place. If it did, the IP is so related in its broad subject matter that, even under the liberal California law, it could be said that it involved a reasonably anticipated extension of the employer's existing products or IP development, in which case it would belong to the employer even if the employees developed it strictly on their own time and strictly using their own resources while employed.
3. The Shred products do not embody proprietary trade secret information belonging to the former employer. For the employer to have a legitimate claim on this prong, it would have to show that it had non-public information (e.g., special algorithms, techniques, etc.) that gave it a decided competitive advantage, that were not known to others in the field, and that were the subject of special efforts by the employer to keep them confidential. If an employee who is bound by a typical confidentiality agreement learns of such trade secret information or techniques only while employed, or even develops or discovers them while being paid by the employer, all such trade secrets belong exclusively to the employer, even if the employee is capable of walking away with the secrets "in his head" only. If, however, the techniques, insights, information, etc. that the employee later used to develop the new products following termination of employment consisted of things known or derivable by any person skilled in the field were derived exclusively using that person's general skills and expertise, and not from taking any employer's proprietary information, then the employer has no claim on any of this. In particular, if someone was already an expert in the field before beginning the employment, and applies what he knows for the benefit of his employer while employed, that employee continues to own what he came in with and can use it as he likes in any post-employment situation. He does not lose what is his just because he passes through a particular employment situation. So, summing up, if the post-employment products derive exclusively or primarily from a former employer's "secret sauce," the employer has a claim; if they derive only from the general skill and expertise of an employee, the employer has no claim.
4. Nothing in the new products infringes any patent belonging to the former employer.
5. No other acts of unfair competition took place that would have tainted the new venture (e.g., no raiding of other employees by soliciting them while employed, no post-employment violation of any express non-solicitation clause, no customer theft based on misappropriation of trade secret information and the like).
6. The founders have a practical way of dealing with the legal costs and the impact of the lawsuit cloud on their ability to develop as a company. If the case is a clean one from their perspective, this usually means the employer will not be able to get any type of preliminary injunction to stop the venture during the legal fight. In that case, if the new venture can generate revenue, this can help fund things or can possibly be sufficient to assuage concerns of investors so as to convince them it is worth their while to fund the venture in spite of the lawsuit. The dollars involved in such a defense are large for a small venture but can be managed in the right situations (likely in the hundreds of thousands, more if the employer is particularly obnoxious).
7. If the former employer is taking a reputational hit by pursuing the lawsuit, this works in favor of the founders as well because there is a real price to pay besides money for being a bully (if that is what is happening). After all, who wants to work for a horse's ass of an employer given a choice.
I don't know the facts here but there are several indicators that the Shred founders are being truthful in what they are saying. If this all followed from an initial rejection of the former employer's effort to own or control them, this likely indicates bad faith by the employer. The offer to have the code compared by a neutral is also important. It is true that stolen code by itself may not be the key thing but such an examination can bring to light many important things about whether a viable claim exists here or not. The employer's apparent refusal to allow this does not speak well of its motives. Even worse, if, as I understand it from public reports, the employer wants the code turned over to it in discovery, this is a very bad sign. Even if this is done under a so-called protective order, this sort of tactic is very often a tip-off that it is the employer and not the employees that is trying to engage in dirty tactics to gain a competitive advantage. Information is very amorphous and having the employer's developers scour the code directly is a sure way for them to grab key ideas/techniques that they normally would have no ability to access. Another tip-off is the employer's CEO being taped making statements that he intends to win whether the employer is in the right or not. By itself, perhaps an inconclusive statement but combined with the other factors, this does not look like good faith. Finally, YC is standing behind Shred. This, again, is only an indicator but YC has demonstrated itself to be nothing if not honorable in innumerable situations and it does not want the taint of being associated with a dirty company. Its support is thus a good indicator of what is going on here in reality.
Only time will tell who is right but, on the surface, this looks to me like a classic case of abusive litigation aimed at gaining something besides a just result on the merits.
IANAL, but: for all the comments stating "there are two sides to every lawsuit," let me say that oftentimes there aren't. And just because someone threatens to sue someone else does not mean the party being sued did anything wrong, it just means plaintiff wanted to sue the defendant.
I'm speaking from personal experience, a former employer threatened to sue me for unspecified 'trade secret infringement,' and it cost over $20k in legal fees to convince ourselves we were covering all our bases.
The problem is there's a basic asymmetry in these situations: it costs very little to initiate a lawsuit, or even just threaten to initiate a lawsuit. We were so scared we spent money on lawyers (and a second opinion!) before anything had even hit the court system.
Probably obvious advice we should've taken: do nothing until they'd actually filed something, then respond only to specific allegations. The burden of proof is on the plaintiff, and California has some really excellent worker protections around IP etc. Had we just ignored them it probably would've blown over.
Shred sounds like they're on top of this, but if anyone needs the name of a good IP lawyer in CA (he's in LA), message me and I'll put you in touch. I would love to refer him some business because he gave me hours of free advice, and was generally very good about keeping costs down. (Relatively speaking. Signing a check over to a law firm feels like the worst use of capital.)
Wow, if an employer said that to me, I'd start sending out CVs/resumes that night. Last thing you want as an employee is to worry that your employer is going to sue you at some point down the line if you leave...
I'd go work for some other large company initially, so that if I ever did want to start a startup I am somewhat insulated from that insanity.
My co-founder Mark Godfrey did go work full-time for another company before we started Shred Video. He didn't start working full-time on Shred Video until May 2015. Smule filed the lawsuit against us without ever seeing any of our work product, beyond an investor pitch video an investor we'd pitched. All Smith heard was a description of something we intended to build, decided he didn't like that we were doing it, and sued us without even speaking to us.
Yes, I completely agree. Thing is, we'd have to go through the full legal process before we could pursue that. Smule filed the lawsuit months before we even had a product or got into YC, they probably thought we wouldn't make it this far, let alone another two years.
I am sad to say I was a Smule customer, having downloaded and played Magic Piano. I also purchased quite a few songs inside the app. It is/was a great app.
Not anymore. I've deleted Magic Piano and I'll never again be downloading, purchasing or contributing to in any way Smule or Jeff Smith's companies or products.
First, I believe them when they say they didn't steal anything. But second, and more importantly, I find it highly unlikely that even if they technically violated some agreement somewhere that it would play any significant role in the success or failure of Shred Video. I think it's just anti-competitive, greedy, ill-will to not allow former employees to succeed or fail based on how well they execute their new venture. It's a dangerous bullying approach that stifles innovation.
Exactly this in the opposite way too - I don't see how Shred Video could hurt Smule. The way I see it there's no problem with them both coexisting, it's not like it's a tiny market or anything. Just seems so unnecessary on the part of Smule and just seems vindictive and pointless. Smule could just, you know, compete with their products if they felt threatened. Isn't that what a market is?
I was also a huge Smule fan and would recommend their apps to people looking for interesting music making tools. Not anymore. Will be doing quite the opposite actually.
Given Smule's apparent lack of interest in investigating whether their allegations have merit, it seems a little hard to imagine that their side of things actually does have merit.
How can you declare their lack of interest in investigating - the Medium post is 2 hours old. If you think that its simply a case of not using your old employers code then you're naive (See: The Social Network).
FTR: I'm not on either side here but I'm unsure if this blog post was the wisest move.
> How can you declare their lack of interest in investigating
Both by Shred's account and Y Combinator's, Shred has repeatedly offered to submit their code for third-party review to see if it is copied from whatever Smule thinks it's copied from, but Smule has declined every time ("claiming, although they most certainly know better, that Shred could have successfully obfuscated their code making such a review useless," per Geoff Ralston's post).
"If you think that its simply a case of not using your old employers code then you're naive".
A third-party code review would do little or nothing to prove whether Shred have "stolen" anything.
Suppose you and I both wrote our own authentication systems (the horror!) - I'm sure we'd create much the same functionality wise but our code would probably look vastly different.
Then what is important? What do you figure was stolen here that is concrete enough to be a cause for legal action but so nebulous that the presence of the stolen "thing" in Shred's code base would be completely invisible to third-party investigators who were looking for it specifically?
Oh, shit, that's where I remember the name from. They made the Ocarina app for the iPhone. Who would've thought a company could succeed on novelties like that?
I'm in the middle of writing an article about startups and attorneys. Normally I write articles for attorneys to read, but this time I'm trying to write for startups. This story falls right into the "hate lawyers" mentality I;m trying to address.
They seem to have not adopted appropriate procedures for exiting an employee. Nor did they have appropriate advice on handling IP issues. This is evidenced by the article's conflation of copyright (the literal code) function (what the code does) and tradesecrets. Whether the code enables the same features is not the issue. It is very possible that he stole and used code in an altogether different product. It is also possible that he stole said code and didn't use in any other product. That can still be a copyright/tradesecret violation.
Having legal advice at hand can prevent these situations in the first place. It doesn't cost much to have a lawyer drop by for an afternoon each month. I do quick IP lectures all the time at small outfits. Making sure new employees and current managers understand what IP actual means can really calm the waters.
I get the whole leaving on good terms, really. But this whole "hey, we just want you to keep the code and answer questions for our other engineers" aspect really ought to have set off red flags.
Pro-tip, hand write a nice letter to your boss/colleagues on your way out. Bingo, no burned bridges, and no risk of law suits for holding on to company IP.
It was Mark's manager John Shimmin who made that request. John is a great guy, and Mark had (still has?) a great relationship with him. He genuinely wanted to help Shimmin, and did so faithfully for weeks.
It's not fair to pin this on Mark and dismiss it with a "rookie move dude." Mark (and I) had no idea that facts could be twisted and ignored to create this kind of legal conflict. A lot of people operate under the guileless belief that if they help someone, that person/entity will not screw them. Mark is one of those people.
Unfortunately, the 'rookie move' is a fair assumption. Even if there was a small possibility of conflict: Your IP is your company and these things should have been covered.
It's a sad lesson and an emotional mistake. You didn't owe the employer/managers anything and should have cut all ties to the company especially since these projects are somewhat related.
You are both good guys for wanting to help out and it sucks that things got twisted up. I hope things work out well and I wish you all the best.
I suspect this may significantly depend on the quality of your handwriting. I'm just old enough to believe that handwritten is more polite in theory, but in practice I'd probably send an email, or print out a typed letter and then initial it.
They can't tell if I was being nice if they can't read what I wrote, after all :)
When I left an employer to found a startup, I didn't say a word. Just said I was leaving for another position, gave notice, and left normally.
I agree: rookie mistake. This is particularly true given that there's at least some market overlap (video, etc.) and the CEO gave a talk where he basically threatened employees.
Have you consulted your lawyers? Ridiculous question, I know. I ask because of a combination of three things.
1) You wrote: "Jeff Smith and Smule are big and rich, and the US legal system offers little protection against frivolous lawsuits."
2) Going by CA Secretary of State website (and whois database), Shred Video is clearly based in California.
3) California has some pretty strong Anti-SLAPP legislation that would enable you to collect punitive damages when you prevail. I'm pretty sure Anti-SLAPP issues can be brought up in pretrial motions too. Maybe you need to check into the bona fides of your legal team.
Feeling for you man - been there (recently). You'll get a lot of sideways looks from people who have no reason to doubt you. Ignore it. People always assume the person doing the suing MUST have a good reason. It's the same reason people jump ship whenever someone is accused of a crime: until it happens to you, nobody wants to believe something this destructive can happen without cause. But it does - every day.
As a side note: everyone saying categorical things like "never walk away from a former employer with code on your computer" - remember that they don't know what they're talking about. Categorical statements in these situations are never correct. This is about a life lived honestly and in good faith being turned around on you - don't feel like you did anything wrong, just take opportunities to learn.
Lastly, to everyone giving Smule the benefit of the doubt remember: this means nothing (NOTHING) to Smule and everything to the Shred Founders. If Smule turns out to be right (which seems ridiculously unlikely), then it still means nothing to them. If they are wrong, which seems to be the case, they're destroying a company and lives at the same time. Keep the stakes in mind when you're considering the situation.
I do computer forensics and have been involved with many IP theft cases. I do know what I'm talking about. "Never walk away from a former employer with code on your computer" is indeed a categorical imperative to live by.
- Never walk away from a former employer with code on your computer.
- Never walk away with an employer's property.
- Never walk away with a functioning email account.
- Never walk away with documents.
- Never walk away with paper.
- Never walk away with anything.
- Just walk away.
That's not up to the employee, though, but the company's IT. More like - Ask them to shut down your email account, tell them you'll stop using it, and never use it again?
Ditto for VPN and any other access to their resources aside from strictly limited access of their public facing web site.
Exactly. I feel like it's not worth arguing with someone taking this dogmatic approach, but a company that really wants to be in litigation with you will do what it can to convince lawyers and judges (who don't really know how the details of technology work) that you still had access to things and could steal or change them.
A great example is not removing you from cloud services - this makes them look bad but also makes you look capable of theft. It's more important that it remain possible you committed theft than not. Another is if you used a personal computer for work, as most people I know in startups do these days. If they won't supervise a deletion of the code off your computer YOU CAN NOT DELETE IT! If you are sued, you've now deleted things - what if you turn out to be the only person who had it? That's the real theft, and this has come up in real life cases I've seen - it became critical that the code WASN'T deleted.
The statement to never leave with code, email accounts, etc. is just not practical. It requires cooperation from your employer that will not exist in a situation where they're planning to try to bury you in litigation. It's a fools errand to try to pretend like there are reasonable steps the defendants should have taken - they took many reasonable steps and the plaintiffs can always find more that should have been taken.
Agreed, although I wonder how many companies like that will also want you to still have a lot of power to hurt them; in this case, I gather the original continued access was in good faith, but that changed to bad faith as soon as the old boss saw the pitch deck. In the long run of a court case it might be useful to show they were trying to entrap you by keeping the accounts open but removing access to various things or rights, but you've already lost big if you get there.
One more trick you can do, although I doubt it will help much in such a bad faith situation---but maybe do it with your lawyer for documentation---is to change your passwords to randomly generated ones that you don't retain. E.g. run pwgen and cut and paste the password into the change and confirmation fields. If with a lawyer or notary, put them in front of the screen at the right point and have them generate the new password and enter it in, and document that you didn't and couldn't see it.
And that will remove all temptation to touch the forbidden fruit. I've done that with a few forums where I really didn't want to continue joining in the ... discussions.
I feel for you guys! Obviously you only posted your side of this but I know how expensive navigating the legal system can be for a small business owner.
Happy to offer some thoughts and advice from someone who is not a lawyer but has been sued before (and won by having the case thrown out with prejudice!).
Email me lane (at) joinjune (dot) com
Also, maybe setup a GoFundMe for having people help you raise funds to fight this?
Thanks Lane, I'd love to hear about your experience. I'll reach out to you separately.
Financially we're going to be fine, we have enough already to fight this legally. Of course we'd rather not, and we want to expose this behavior for other entrepreneurs vulnerable through similar abuses of the legal process.
This sucks. I use ChucK for composing and Ge Wang's CCRMA class notes are fire. I was under the impression he was a pretty chill guy. Is he really down with this course of action as a co-founder?
ps comp vision on mobile is the future so no matter what keep on building ;)
This isn't the first time, even for a yc company. Remember AdGrok? I think the original post is down, but the short version is the founders met while working for AdChemy. AdChemy's ceo Murthy Nukala -- who sounds like a real piece of work; he apparently got $2.4m [1] in the eventual walmart acquisition while the employees got fuckall -- sued AdGrok and basically killed the company. They had to raise while being sued and the founders basically got tired of the stress [2].
This comes down to what it means to be an employee and fundamental aspects of class. The reality, although difficult for most to accept, is that the current wage-based system grew directly out of the previous system which was outright slavery. The ownership/master class view employees as property. Any and all output including ideas are also viewed as the property of the owner.
And so far as possible employers attempt to extend the range of their ownership and control of their employee's and employee's ideas as far into the future and to as great a degree of scope as they can get away with.
Fundamentally these are unresolved issues our society has about class, equality, and freedom.
I am with you Shred team - this is a ridiculous and unfortunately all-too-common occurrence. Startups are difficult enough without all the lawsuits etc.
Here is a thought, why don't you just freeze on that old code-base and start afresh? I work with video extensively and know what you are doing can be done using open-source components and it shouldn't take much time. I can volunteer my time & coding chops to help out a fellow entrepreneur
The problem isn't source code theft, it's this, in the words of the Smule CEO [1]:
"If you fork off a startup and there's IP overlap, it's just a big mess."
And the big legal mess favors the company with more resources, something Smule knows. Whether the lawsuit is personal doesn't really matter. What matters is that former employees started a company in an overlapping product space, which unfortunately made them an easy target for litigation.
Several rookie mistakes in here by the Shred team. First of all if you are gong to start a company while working for someone else, get an explicit agreement in writing before starting that venture. Second, there should have been an agreement/contract in place for doing the additional work which was requested by Smule. The claims of theft could still be made by Smule but Shred's story loses credibility for me because these basic business practices weren't followed. Who is to say that the lines weren't blurred when it comes to leveraging the assets of the former company? And if a laptop is obviously the property of Smule then nobody can force you to keep it.
I feel much empathy for the Shred team but the story has a bunch of challenges buried within.
I so hate this attitude about people acting in good faith doing 'rookie mistakes'. I'm just answering to this post, but it's by far not the only one along those lines.
Why does everything have to be done on explicit contract basis? How can an altruistic act of one party (helping out after leaving the company for free) be turned against them!? Where will this end!? Will I have to get in writing that this was in no way meant as a bribe every if I ever pay a round of beer for a couple coworkers?
There should be protection in place that if people act in good faith they cannot easily be sued like this. And definitely this kind of victim blaming is not helping going in such direction.
I would say it's because history teaches us that goodwill only gets you to a certain point.
When you're acting on good faith, asking for a formal contract should be seen as a totally normal request. If the other party is also acting on good faith.
This is basically a win/win situation. If they complain about such a simple request, they might be hiding something. And if they do agree to simply formalize the agreement, you're protected.
I've been burned by "good faith" before, and it changes you. By pointing out "rookie mistakes" maybe someone will read this and start taking these things a little bit more serious.
Of course on an ideal world, we'd be protected and shouldn't have to worry about it. But that's utopia for me
Agreed, but it's still frustrating that we live in a world like this. Though something important to point out: This ability to just sue people or smaller companies to bankruptcy is something very American, that's not as easily possible in many European countries. So it's not like utopia that just wouldn't work!
It's business. This is how business works; altruism left town a long time ago. If you haven't read a million other stories like this, what business do you have running a business? I'm sure it's gut-wrenching, but if you want to play the game then learn the rules.
I get it, definitely frustrating. But we know the world - especially the business world - is not a kind place and that we have to protect ourselves or we end up in these situations.
Interesting story, and it sounds (from a one-sided perspective) like Shred's founded acted in good faith. And I agree with the disconnect between frivolous lawsuits and small companies.
I don't think the last line in particular does Shred any favors. ("Turn this offer down, and you will reveal yourselves as anti-innovation bullies, using your wealth to harass a young startup with litigation just because you can.") They might be, but they might also have good reason not to agree that a code audit is an unambiguous, standalone, infallible process. This is setting up a, "When did you stop beating your dog?" kind of question.
I'm not familiar with any of the people involved and haven't read the pleadings. That said:
* The lawsuit may make it more difficult for Shred Video to raise funding, but the linked writeup and YC's blog post don't exactly show Smule in a positive light. The "if we're wrong, we'll win" quote from Smule is telling. I'd want a very good explanation of this mess before entering into a partnership with Smule.
* Smule is warning that any employees using company property on company time to build their own startups exposes them to legal liability. This is a perfectly reasonable position. (Note I'm not saying that Shred's founders did that, only that Smule's point is correct as far as it goes.)
* California law in particular is more startup- and founder-friendly than most and makes some elements of employment contracts unenforceable as a matter of public policy. It likely doesn't apply here, but it does mean if you build and sell, say, drones in your spare time while working a California pharmaceutical company, that employer wouldn't have an IP claim (even if the employment agreement was broad).
* Shred's founders should have made a clean break and not retained any hardware or access to code after they left. That's what I did when I quit my job at a large publicly traded company last year to found https://recent.io -- I returned the work laptop on my last day and haven't done any work for them since. But this is hindsight, I know!
Just a quick correction on point 3, lest someone get too confident they're in the clear: the law about employees owning their own inventions is the default in California, but you can sign an employment contract that signs away those rights. (IANAL, by the way.) Also relevant to HN readers: a lot of those protections are moot if you're acqui-hired: the CA-specific protections about noncompete being unenforceable does not apply if you were an equity holder during an acquisition. Just an FYI.
Also, the default is narrowly defined: if you do it entirely on your own time, with your own equipment, and without using any ideas etc from your employer, you're in the clear.
Maybe most importantly, you're only "clear" in theory; in practice you're 'fine' for exactly as long as your (ex-)employer doesn't decide to sue you.
Also, keep this in mind when it comes to lawyers and lawsuits: they produce a huge, huge amount of uncertainty. We'd like to think of the legal system in this country as a process that consistently produces just outcomes; in practice it's noisy and biased against small operations. You can be 100% morally in the right, and even 100% legally in the right, and still have a bad outcome. Specifically: I've been told at length that getting 'damages' when you're sued without cause -- that is, having your legal bills paid by the frivolous party -- is an extremely high bar to clear.
Furthermore, lawsuits and appeals can drag on for months and years (particularly absent any binding arbitration clauses). Does it do your startup any good to get your money back 18 months later? Probably not, and if you die along the way they win by default.
That last point is what Smule's CEO seems to be counting on when he says 'we win if we're wrong'.
And I guess I'm just saying, he's correct. He's not right, he's definitely wrong, but he's correct.
Just my (morbid) two cents.
On point #3, I think we're talking about two different things. You mentioned "noncompete" agreements, which is an important topic but unrelated.
What I was talking about is intellectual property assignment clauses. Excerpt:
Under California law, an employee cannot be required to assign any of his or her rights in an invention he or she develops “entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information” unless:
when the invention was conceived or “reduced to practice” (actually created or a patent application filed) it related to the employer’s business or actual or “demonstrably anticipated” research or development, or
the invention resulted from any work performed by the employee for the employer (California Labor Code, § 2870)http://www.intellectualpropertylawfirms.com/resources/intell...
Unfortunately you are correct about the Smule CEO being correct (assuming he was quoted accurately).
I think the operative phrase there is 'related to the employer's business' -- the other issue is noncompete / IP assignment clauses will be written to be broad, then they force you to win on merits: you have to prove it doesn't relate to their business, and if you lose (because courts introduce a degree of randomness), it doesn't matter what the protection was.
And of course, that possibility has a chilling effect, which is sort of the point of the overly-broad IP assignment.
(But yes, you're totally right, I was conflating IP assignment and noncompete... I've been tangled up in both.)
Errr, All I'm seeing in the article is a, 'We didn't use any of their code guys, see compare the functionality of our products yourself.' Unfortunately, as true as the article might be, simply showing different functionality doesn't mean you didn't steal other portions of the codebase that don't deal directly with the algorithms of what you're doing. For all the reader knows you stole video decoding/encoding, audio decoding/encoding portions or something even as innocuous as a GUI frontend. Now agreeing to do a 3rd party analysis is a wise thing, hopefully the legal system forces this. If the accusation is that code was stolen, then someone should have to actually verify against what is alleged that they stole, it'd be pretty ridiculous if they awarded any damages without doing anything like this and simply went on the basis that 'they are similar products or may use similar algorithms.' Being similar or using similar algorithms does not mean they are the same.
"...the US legal system offers little protection against frivolous lawsuits."
If they believe that, they need better lawyers. I know this is over-simplified, but -- If the lawsuit is truly frivolous they can file for a summary judgment. If that is not granted, then the lawsuit was not frivolous.
Exactly. And there are no exceptions to this. If they want to keep you on as a contractor or consultant then by definition you aren't a former employee.
I'm always so paranoid of this at any of my employers so I go through great lengths ensure everything is separated. It's a lot more work in terms of managing your stuff, but can simplify situations like these. I always keep my work and my personal projects completely separated. Separate machines, separate repos, separate accounts and I don't do personal stuff at work. My goal is to have a clear separation so if either of us decide that our contract isn't working; it's as frictionless at possible. While I applaud the fight for what's right, there is no doubt that a legal disagreement will take time away from building the product that your users want.
Completely agree. We ourselves were very conscientious to never do anything Shred Video-related on any Smule machines, and did not build anything Shred Video-related until after we'd terminated our full-time employment at Smule.
This sounds a lot like a non-compete claim masquerading as a trade secrets misappropriation claim, and if so should be dismissed as a matter of law unless Smule can allege what specific trade secrets were stolen.
The "bullying" aspect of this is interesting to me. Would taking VC money from a big player help me in such a situation. Let's say for arguments sake I am backed by a16z. Is it usually part of the deal that they provide their legal muscle in these spots or am I on my own?
What would happen if a YC company (pre-funding) gets threatened in this manner?
Edit: Nevermind didn't realize it is a YC company (summer of 2015 batch).
This is kinda why I like free/open source; you don't get too many weird issues like this and it can be very obvious and public if you've copied source code or "took inspiration" from others' code.
Maybe Smule doesn't want their code and IP floating around anywhere outside the company? Even if they trust the company doing the audit, can they trust all the employees of that company, and any future acquirers?
I'm not taking sides (because I don't know anything), but after reading this and Geoff Ralston's post, that's at least one good reason Smule wouldn't agree to the 3rd party audit that no one else has brought up.
Of course, I say this with a background in the quant hedge fund world and I doubt any decent fund would agree to voluntarily submit their most proprietary code to be reviewed by anyone.
If you wish to brave the San Francisco Superior Court's abysmal court records website, you can plug in case number "CGC 15 545359" to see the docket and view the documents in the case.
There are tons of cases out there of clear abuse of the legal system, where the facts are as close to black and white as you can get. This doesn't seem like it is. From an outside view, reading about employees who had access to trade secrets, even source code, leaving together to make their own product in a similar field while retaining access to said secrets (the ongoing support role) seems like a very murky case, and something that the court system is probably best to sort out.
You know what is sad and wrong thing here: YC companies have reputation and perception in my mind (by reading storied about BnB, Uber, heroku, rapgenious, etc.) that my initial reaction is that Shred founders are just typical hipster white kids who stole other's people hard work.
I'm 100% wrong with my initial reaction but if I'm YC I would look into this trend and perception in public.
Again I'm wrong and there should be no judgment here.
What I have trouble understanding, given the ubiquitous nature of the internet, is that people continue to start up companies in the US or other countries where there is an unbalanced and corrupt legal system. Why not at least start a company in a country where you are guaranteed some form of defence through the courts even if you don't actually want to reside there?
I know it's problematic for a number of reasons, but I'd sort of love to see YC throw their weight behind this -- e.g. "if you've worked at Smule beyond 23 Sept 2015, you are ineligible for consideration in any future YC rounds".
It always baffles me how much power goes unused in Silicon Valley, but I suppose most of that restraint is due to personal relationships between the VCs/founders.
I demanded a clause in my last employment contract stipulating that I retained the ability to use methods developed for later employment but the system as a whole is the property of my employer. Protects both parties. I can't steal his product. He can't prevent me from doing math.
Wow. This is a well written piece and really sets the facts straight. Go Shred! As for the comment that there are zero innocent parties: huh? Doesn't seem like that reader read the facts.
(2) Going to court without a lawyer is even more expensive.
(3) With an outstanding legal issue the company will find it hard to access credit.
(4) Many assets may be locked-down pending the outcome of the lawsuit, making it difficult to sell things, enter into new contracts or use said assets as collateral on loans.
1.) people reading this won't pay attention or understand the fine detail
2.) non-compete clauses etc. are there because learning on the job gives an advantage to starting up after leaving.
should have researched legal precedent and played it safe imo. waited two years and set up somewhere geographically remote from the original employer...
i hope this plays out well. as much as there was some naivete in this enterprise i don't think there was any ill intent, and this really is a bit of bullying... the only sad thing is that the bullying might be legally justifiable given the circumstances described.
Non-competes for the targeted employees are completely unenforceable in California, where both companies are based, from long standing statutory and case law.
Many believe that law has more than a little to do with the success of Silicon Valley/the Bay area's tech concentration, which has long and far surpassed all others in the US.
Let's assume the poster's former employer is trying to sue them into submission. That's a plausible claim as that kind of thing does happen.
Well, if true, that strategy is clearly working.
Why do I say this? Because no competent lawyer would let their client post something like this. It can only hurt you. Make any statement of fact that helps the plaintiff and they'll use it against you. Make a statement that doesn't help them? Well they were going to dispute that anyway so who cares?
So I can only conclude the Shred Video doesn't have competent legal representation and thus is probably going to be or are being bled dry by litigation unless they can find a source of funding, which, as noted, is more difficult with a lawsuit hanging over your head.
One thing I've consistently done is when I've left a job I've never taken any hardware with me nor a single line of source code. It can only hurt you. Obviously I don't know if that were a factor here but the poster has stipulated one of the founders did have a Smule laptop with company source code on it. Woops.
Consider this a lesson learned: either don't offer to help your former employer when you're working on something else or get them to release any current or future claims to your company or IP before you do. Also, you probably want to get paid upfront. A separate contract should govern such work and it should state clearly that the former employee has access to the source code at the employer's request and the employer relinquishes any claims resulting from that source code. Employer might not go for that. Fine. Walk away.
As Paul Sutter stated, this is an emotional appeal. I too suspect there was fault on both sides here without knowing the facts.
One question I have is: when did the founders start working on what became their startup? That matters. If there's a crossover with their employment then that's potentially a problem.
In California the law is pretty generous with side projects so this might actually be OK but here's the thing...
If the plaintiff through discovery finds source code commits to the project that occurred before they finished working for Smule then even with Californian law they have a problem because the plaintiff has now established:
1. The founders started working on this before terminating employment; and
2. They claimed otherwise.
It's (2) that gets you into trouble because it hurts your credibility when making any other claims.
This is why any competent lawyer will not allow you to make such public statements. Let me repeat: it can only hurt you.
The founders are making the mistake of trying to win this in the court of public opinion. That doesn't matter for this particular plaintiff I suspect. So they've just given him a bunch of ammunition as every statement will be carefully parsed and fact-checked and any inconsistency will be used against them. Even if a statement is ambiguous and was intended one way but can be interpreted another (that can be disproven), it's a problem.
I had a threat of a lawsuit once that basically amounted to someone using the threat of it to get out of paying a fairly substantial amount of money. Not life-changing but certainly annoying. The lawyer I spoke to at the time (side note: free legal consultations where you shop around a potential case can really help) gave me this advice:
"Don't respond (to emails, phone calls, etc)."
If they file suit, they file suit and you can deal with it then. Until then don't give them any ammunition.
Other facts that may matter here are any patents Smule has or are pending and if the founders are listed as inventors. Something like "algorithmically annotating a video to music" is the sought of nonsense patent the USPTO might grant and may later be invalidated as being overly broad and generic but again that puts you in the position of having to either show non-violation or to invalidate the patent. Neither is quick or cheap.
But pick apart Shred's note, and really it's an emotional appeal based on two ideas:
1. That the sole test of stealing ideas is source code that has been copied verbatim.
2. That the only possible secrets of Smule are features implemented in released products.
These are pretty weak legs to stand on. They're actually preposterous.
Lawyers will tell you that it's really hard to prove theft in court without a smoking gun like "stolen source code", and the chances are, if they've stolen ideas in other ways, they will probably get away with it.
Almost certainly, Shred's lawyers are playing a key strategy role in this PR campaign.
So my advice is to be wary of emotional appeals from either side of litigation. We don't know what happened, and we learn less than we think from these notes.
ps. Yes I read the remarks in Business Insider too. I'm not advocating that Smule is the innocent party here. Most likely this is some bullshit pissing contest with 0 innocent parties.