Can investors protect their business idea?

Question

Suppose that Alice is the developer/founder of the Uber app and finds an investor for the startup company resulting in the existing Uber company. Suppose also that there is no Lyft or UberEats app out there yet. Which one of the following is possible for Alice to do and not be successfully sued by the investor:

1. Alice thinks Uber is very good but needs some minor modifications. For example she likes to work with drivers only between 40-50! Or she likes to get a cup of coffee to riders. So she decided to write a new application and name it Lyft with my her money.

2. Alice thinks it would be a good idea if the company also delivers foods instead of transfering people. But it should be a new brand name and application, so she writse the UberEats application and names it "EasyFood". (So the UberEats will never have existed).

For which of these two scenarios could the Uber investor sue Alice with reasonable hope of success?

Also I would like to know, can an investor force a company founder or employee to sign an agreement like "You have no rights to use our co-business idea or any similar ideas to establish a new business like "Lyft" or "UberEats" with your own or any other investors"? Is such a thing possible at all?

Answer 1

An investor can require, as a condition of making an investment, that key management and creative employees of the company agree to a non-compete agreement. If such employes choose not to sign such an agreement, the investor will not invest. This is quite common.

If Alice has signed such an agreement, she may not be able to start a new company with such new applications without permission from the existing company. She can surely write such applications for the existing company and get it to modify its business to use them. If Alice (still) owns a controlling share, she can simply order the company to modify or expand its business model. If she has sold enough of the company that she no longer controls it, she must persuade those who do control it to adopt her ideas.

Any non-compete agreement must be limited, both in the range of activities it covers, and in the tiem for which it is valid. Some US states impose specific limit on these factors. An agreement tht exceeds such limits will not be enforceable.

If Alice was employed by the company at the time she wrote any of these apps, the code may well be owned by the company, either under the work-made-for-hire copyright rule (see 17 USC 101) or under a specific contract of employment. Investors are likely to demand that such a contract be signed before they invest in a tech startup.

Alice will also have a duty not to act contrary to the company's interests while employed by it.

In the absence of non-compete agreements, Alice might not be prevented from founding or joining a competing company, but may not be able to use work done while employed by the first company for the benefit of a new one.