As reported by Economic Times, Delhi High Court granted a stay on Zostel , when Oyo Rooms claimed theft of proprietary software by its employees who left Oyo to join Zostel. Court gave decision in favor of Oyo, stating that there was significant data and technology breaches made by Zostel.

Zostel launched Zo Rooms, which rival hotel rooms aggregation start-up Oyo Rooms alleged is based upon copied data. During the hearing, Oyo Rooms produced evidences such as emails, CCTV footage and theft of its ‘software’ by few of its own employees who apparently left to join Zostel.

In June last year, Oravel had shut down its short stay accommodation booking site, and shifted focus to OYO Rooms. A few months earlier, it had raised an undisclosed amount of funding from Lightspeed Venture Partners and DSG Consumers Partners. Last month, the company raised a further Rs 150 crore from Greenoaks Capital and existing investors. On the other hand, Zostel had secured Rs 5 crore funding from Malaysia-based angel investor Presha Paragash in May last year.

This stay on Zostel can have serious ramifications not only putting 5 crore funding in danger but also losing its reputation in Market.

Tech –Startups in India

Technology startups in India are not that tech-savvy as compared to west, but whatever data or software code they are writing to provide service need to well-guarded from wolves.

Tech Startup faces lot of challenges including developing a good functional product, attracting good talent, getting funding from investors, facing tough competition from small and large corporations etc. In between of all this if startup has to bear the after-effects of IP infringement suit that can potentially ruin the company.

One of the deadliest mistake that any tech start up can do is not to take care of its intellectual property. As reported by Economic Times, fiercely competitive Indian Startup industry, good employees are often poached by rivals to write up code for their company.

Companies in sectors ranging from enterprise software to gaming to app development to on demand delivery, therefore need to sign stringent employment contracts so that their employees cannot take away their IP to other company.

How can startup prevent IP theft ?

Employee Retention:

A former employee is probably more likely to misuse or misappropriate a company’s proprietary information than a hacker or vendor.One of the best ways for any tech startup is to retain good employees with reasonable equity compensation.

Post – Termination Obligations:

Employees do, of course, leave even the best of companies. Accordingly, companies should obtain from employees non-competition, non-solicitation and non-disparagement covenants that extend for a reasonable period following termination of employment, to the extent permitted in the applicable jurisdiction. Like employee inventions assignment and nondisclosure agreements, companies should condition employment on new employees signing employee non-competition (to the extent enforceable under applicable state law), non-solicitation, and non-disparagement obligations before commencing work, as obtaining such documents can become difficult and/or expensive later on, especially if an employee is unhappy or is being terminated.

Creating Culture of IP Awareness:

Companies should arrange training programs creating awareness about invention disclosure and assignment. Also HR of the company should be trained that no employee joins without signing required IP documents.

IT System Security:

In addition to securing ownership of IP through assignments and registration, companies should prevent unauthorized access by securing their IT systems. Companies should:

  • Use secure and encrypted cloud storage, email and file transfer applications (many free services do not provide much security)
  • Require and use appropriate passwords on computers and mobile devices
  • Encrypt flash drives and other portable media used by company personnel
  • Adopt and abide by a simple document retention and destruction policy

IP Assignment and Nondisclosure Agreements:

One of the simplest steps any company can take to secure its IP is to require all founders, employees, and other third-party service providers to enter into IP assignment and nondisclosure agreements.

IP assignment obligations should provide that all IP that a person has created or may create in connection with the services provided to the company and/or derived from the company’s proprietary information shall be the property of the company.

Companies should also obtain standard nondisclosure agreements from all parties who may have access to any of the company’s confidential or proprietary information, including all founders and employees. These nondisclosure agreements should contain both restrictions on disclosure of the company’s confidential information and also prohibitions on the third party’s use of the company’s confidential information for any purpose other than as contemplated in the nondisclosure agreement.