Inspiration for a new business can come from virtually anywhere. However, if you as a small business owner decide to draw your inspiration from another recently closed startup, you might inadvertently be setting yourself up for a serious lawsuit. In episode #128, Gene Marks and Elizabeth Larkin discuss all the legal components that you’ll need to examine prior to using another business’s idea for your own.

Executive Summary

0:38—Today’s Topic: Is it Legal to Copy Another Business’s Idea After It Closes?

1:37—It’s alright to “steal” ideas from other businesses as long as they didn’t file for any patents or their idea isn’t recognized as intellectual property.

2:35—Before you use another business’s idea, you need to determine whether it had any proprietary technology or whether you would require any licensing to open up a similar business. If you need additional help, consult with an attorney.

4:57—You should also examine why a previous startup failed prior to using their idea. Perhaps, there are some pitfalls you need to avoid or preventative measures that you’ll need to take.

5:13—Lastly, don’t be afraid to approach the owners of that other business. They might even be able to offer some much needed insight and assistance.

6:21—Gene advises distribution businesses to look into 3D printers that manufacture steel products because this technology could potentially save them a lot of time and money.

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Elizabeth: Okay. Welcome back to the Small Biz Ahead podcast, this is Elizabeth Larkin from The Hartford and I’m here with Gene Marks of The Marks Group-

Gene: Soon to be in jail once we talk about this topic (laughs).

Elizabeth: (laughs) Yeah, this is a legal topic, but we’re going to tackle it anyway. Today we’re going to be talking about, if you have a small business near you, and they have a great idea, but then they shut down, can you just slide in and take their idea and open your own business?

Gene: Who is asking this question?

Elizabeth: Is this legal?

Gene: I want to know, right?

Elizabeth: This was an anonymous question.

Gene: Yes.

Elizabeth: So we’re going to answer this question for our listeners after we hear from our sponsor.

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Question: If A Startup With a Great Idea Shuts Down, Can You Legally Take Their Idea?

Elizabeth: So Gene, I think a couple episode ago- actually, it was probably more than a couple episodes ago, but you were talking about two different ice cream stores in Philadelphia-

Gene: Yup, with the rolled ice cream.

Elizabeth: And they did that rolled ice cream. So I’m guessing that, if you have a small business near you and you think, wow, that’s a great idea, and then they close, and you go in and try to… I think that’s fine, right?

Gene: Yeah. You can steal ideas from anybody you want as long as it’s not patented, or it’s intellectual property- I’m using the word steal, I mean, Elizabeth’s giving me the stink eye. So, let me at least just say not steal in the sense that, when somebody else has a business, it happens all the time. Like the rolled ice cream people, a guy opens up a rolled ice cream business, and then somebody opened up a competitive business down the street. So it happens all the time.

Elizabeth: Well, I think that’s the case. But let’s say, it sounds like this person’s asking a super specific business-

Gene: Right. Well, again, super specific is just, these are words. I mean, it depends on whether or not there’s intellectual property involved. Are there trademarks involved? Are there copyrights involves? Are there patents involved? You know, if somebody’s come up with an invention, a certain way of doing something, can you just steal that from somebody else and just use it? No.

Elizabeth: So what are the legal implications? What do you need to do? You have to hire an attorney, I’m assuming.

Gene: You do. First of all, you have to determine whether or not the other business itself has got some type of proprietary technology. Is this something that you would suspect is an invention or something unique to that business that could be a potential issue? Does that business represent another company, sell somebody else’s products that they are licensed and allowed to do?

For example, my company sells software products. You could be selling farm equipment, and you have a license from John Deer farm equipment to do that in your area. And then if you go out of business, does that necessarily mean somebody down the street can then start selling John Deer equipment? No. I mean, sometimes, there’s agreements and licenses that are in place.

So you have to look at that. And yeah, if you’re unsure in any way, and you should always be very conservative about that, then I think it’s worthwhile hiring an attorney to do background checks asking these very questions. Is there any liability that I should be… And remember, if you’re a small business, you’re going to generally be off the radar screen of most people and most big companies until you succeed. And then suddenly, you’re on everybody’s radar.

Elizabeth: Then you hear from their like, what? IP lawyers and yeah.

Gene: Or just their general counsel, that you’re selling this, and you don’t have our permission to do that. Or you’re using this technology and there’s a patent for this technology, so cease and desist or pay us our royalty.

So before you startup, if you think that there is some type of ownership involved here, you want to be very conservative. I think it’s very worthwhile to spend a few hundred bucks or a thousand bucks on an intellectual property attorney, or just a general corporate attorney, to do that due diligence and make sure that there are no reasons why you can’t be using that idea of another business.

Elizabeth: Okay. That was a very short answer today.

Gene: It’s an easy question to answer. The big question is, what if you still take a chance? What if you think that your business is different? And what do you think if you are competing against somebody and you’re going to raise the ire of other competitors because you’re doing exactly what they’re doing? There, again, you’ve got to make sure that you are protected, legally, because you’re asking for a fight.

Just because a business goes out of business in your city, Elizabeth, doesn’t mean that there’s not somebody that doesn’t own their property.

Elizabeth: Well, here’s how I would read this question. Why did that business go out of business? Maybe it wasn’t such a good idea.

Gene: It’s possible. But then again, a lot of times, people have good ideas and then they mismanage it, you know? There’s lots of reasons why people go out of business, you know what I mean?

One final thing I can also say is if a company does go out of business and you want to restart, or you want to do something very similar, depending on your personality and what you’ve got, might not hurt to talk to the person who went out of business and find out why, or even ask them if there’s any potential of maybe partnering with the person like that. You certainly don’t want to inherit any of their liabilities, or headaches, or problems from the past, but if somebody’s got some of their own knowledge upfront, why not keep your enemies close?


Elizabeth: Good idea. Alright, we’ll be right back with Gene’s Word of Brilliance.

Elizabeth: And we’re back with Gene’s Word of Brilliance.

Gene: So today’s Word of Brilliance is HP. That is synonymous with the company HP, the technology company that makes hardware and devices, based out in California. HP has recently announced, Elizabeth, that they are now making 3D printers that, for the first time in many, are actually printing steel products. It used to be that 3D printers would only print out stuff that were in plastic. Now 3D printers, led by HP, are coming out with steel products. They are joining some other people that are in the 3D printing industry to do that as well, and the trend itself is starting to build.

Trust me, Elizabeth, when I tell you that, within the next five to seven years, many companies that are in auto-repair, distributors, manufacturers, people that keep inventory on hand, are going to be buying printers made by HP and many other device manufacturers that will be able to print their parts out, manufacture their parts- steel parts now, not just plastic, that they can then use in whatever products that they’re making. Which means it will be cheaper, faster, cut down on delivery times, and improve customer service.

So if you’re in the distribution business, you’ve got inventory, you’ve got to order stuff for resale, you’re in a type of business that uses equipment or parts, that kind of stuff, look at what HP is doing, as well as others that they’re competing with in the 3D printing industry. Because I think there may be some solutions for you to cut your costs and provide a faster customer service in the future.

Elizabeth: This is the most efficient podcast we’ve ever done.

Gene: Well, that’s great. They’ve learned, and now everybody can get back to work.

Elizabeth: Great. Okay, we’ll be back in a couple days to talk about how to cope when you have to let an employee go from your small business.

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