Businesses seeking partnerships or investment capital related to the development of new products must be diligent in ensuring that any trade secrets or other intellectual property at issue in the transaction is disclosed only according to clear, definite terms and remains protected both during and after the deal. A case pending in the U.S. District Court for the Northern District of Illinois highlights the difficulties that businesses may face when one or both of the parties allow a deal to move forward with less-than-explicit paperwork. 

In LimitNone LLC v. Google Inc. (Cas No. 1:08-cv-04178), a small software development business based in the Chicago area brought claims that Google misappropriated software LimitNone  developed to facilitate users’ transition from desktop-based office productivity software, like Microsoft Office, to Google’s Google Apps solution, in which the software is hosted at, and files are stored and accessed remotely from, Google’s servers. According to LimitNone, when the parties first met, Google had been unable to create an efficient method for its users to transfer existing Office files to Google Apps. LimitNone developed a solution to this problem (called “gMove”), and the parties began to explore the possibility of a licensing deal for gMove. LimitNone then signed a Google-drafted non-disclosure agreement (NDA) and a “Google Enterprise Professional Agreement” (GEP) governing LimitNone’s participation in the program through which Google encourages outside businesses to develop programs for use with Google Apps. Thereafter, according to LimitNone, the parties entered into beta-testing and release-version license agreements pertaining to gMove. Following the parties’ exchange of these agreements, LimitNone discovered that Google had deployed a different solution on Google Apps to allow users to transfer their documents. According to LimitNone, it would have been impossible for Google to have completed the development of the software in the time intervening between its first contact with LimitNone, at which time Google allegedly had no such solution, and its discovery of the competing tool. LimitNone then filed its lawsuit in Illinois state court.

Following its removal of the action to federal court, Google filed a motion to dismiss based on choice-of-law and forum-selection language in the NDA and GEP. LimitNone responded with a brief arguing that the dispute at hand is not within the scope of the law and venue provisions of those agreements and that, even if it were within the scope, the subsequent license agreements superseded the NDA and GEP, at least with regard to Google’s use of LimitNone’s IP. As of the date of this entry, the court has yet to rule on Google’s motion to dismiss.

It is usually in the best interest of all parties to a proposed transaction to ensure that the writings memorializing the transaction accurately and completely set forth each and every one of the parties’ respective rights and obligations.  Parties (and sometimes their attorneys) frequently overlook choice of law, venue, and merger provisions such as those involved in the LimitNone litigation, because those provisions typically appear among a laundry list of general contract terms that are perceived to be less important than the “meat” of the contract. However, when a dispute arises, it is usually the case that more ink is spilled resolving disputes as to procedure and interpretive rules, rather than the substance of the transaction. When trade secrets and other intellectual property rights are at issue, the need for careful selection and, if necessary, negotiation regarding accurate verbiage is especially important, because the rights at issue may be substantively harmed by the unintended consequences of a sloppy transaction. 

Always discuss proposed contracts and their ramifications with your attorney, and if you have any reservations or unanswered questions after doing so, seek a second opinion. The legal and financial consequences of a deal gone bad can be – and frequently are – much more costly than the marginal cost attributed to careful legal review.