Be Wary When Partnering

Many businesses achieve success through win-win partnerships. Still, be careful when negotiating an agreement that involves intellectual property

by Vivek Wadhwa

Partnering with large companies is often the most effective way to grow your business. You gain a new sales channel, learn from those with more experience and knowledge than you, and add credibility to your business. Yet the path can be risky. Selling a potential partner on the merits of your business can require you to disclose intellectual property with no guarantee that you will close a deal. You can reduce your risks by taking several steps to protect yourself (see BusinessWeek.com, 4/3/07, "Tip Sheet: Negotiating a Partnership Agreement").

While not indicative of most partnership negotiations, this column follows the ongoing story of one potential match that went sour. I offer it as a cautionary tale for any business considering a partnership that involves intellectual property.

A Bright Idea

In 2003, Kivin Varghese, then a brand manager at Gillette, had a business idea: A Web site that would pay subscribers to view targeted ads. Advertisers could be sure that their messages were really reaching their audiences because the site would prompt subscribers to answer a simple question about each ad. And his fees would beat traditional advertising fees.

So Varghese quit his job at Gillette and spent the next two years building software and perfecting the business model (see BusinessWeek.com, 5/12/06, "Countdown to Product Launch (Part II)") for his startup, which he named BrandPort. He set out to design ways to prevent fraud, make the user experience fun and rewarding, and ensure the subscriber payment system worked effectively. He also filed several patents to protect his technology (see BusinessWeek.com, 2/5/07, "To Patent or Not to Patent?").

Shortly after his site's launch in the spring of 2004, Varghese was running advertising campaigns for companies like Procter & Gamble (PG), Coca-Cola (KO), and L'Oréal. By paying 25¢ for every 30-second commercial watched, BrandPort was able to sign up more than 20,000 subscribers.

Virgin Territory

Buoyed by his success, Varghese decided to approach Virgin Mobile USA as a potential advertiser in September, 2005. According to a complaint that Varghese filed, this is what happened: Instead of simply wanting to advertise through BrandPort, Varghese says that Virgin Mobile's tests of his platform proved so successful that representatives asked BrandPort to develop a service that would offer cell-phone minutes for watching ads. Varghese says this meant he would have to disclose proprietary information, so he asked Virgin Mobile to sign an agreement not to disclose new information it gained for any purpose other than evaluating his offering. Both parties signed a nondisclosure agreement in late 2005.

Varghese says that he had several meetings with the Virgin Mobile marketing team and other executives at their offices in New Jersey during which he shared his experience and plans. And then in February, 2006, he says Virgin Mobile requested that he send more detailed technical information and a proposal to build a platform along the lines they had discussed.

Business Exchange

Track and share business topics across the Web.