Entrepreneurs sometimes fear pitching their ideas to investors out of concern that the business concepts will get stolen. There’s not much an entrepreneur can do, however, given that most venture capital firms refuse to sign non disclosure agreements.

But a nasty legal situation is unfolding in California over stolen ideas at a startup, and everyone from LinkedIn founder Reid Hoffman to Zynga CEO Mark Pincus to TechCrunch founder Michael Arrington are mentioned in the legal documents.

The fight, first reported by Liz Gannes at All Things D, involves San Francisco neighborhood information site Nextdoor. We wrote about the company last month in part because of the involvement of Rich Barton, the Zillow co-founder and venture partner at Benchmark Capital who just joined Nextdoor’s board.

Barton isn’t named in the suit, but Benchmark, Nextdoor founder Nirav Tolia, Facebook CTO Bret Taylor (formerly of Benchmark) are accused of stealing the idea of Fatdoor founder Raj Abhyanker.

Abhyanker, who pitched the idea of Fatdoor to Benchmark in 2007, alleges that the firm and other defendants “fraudulently misappropriated and stole trade secrets, business plans, unpublished confidential patent applications, knowhow, and software technologies regarding the Nextdoor/Fatdoor concept.”

Abhyanker, who later created The Dealmap, a daily deal aggregation site which sold to Google, noted in the complaint that he had every intention to purchase the domain name Nextdoor.com if the venture financing with Benchmark was secured. But Nextdoor founder Tolia tells All Things D that “the idea and naming of Nextdoor was originated solely by the employees and founders of our company.”

There are some other interesting Seattle angles to the story. For one, Fatdoor.com recruited Seattle’s Chandu Thota as CTO in 2007. Secondly, Benchmark partner Kevin Harvey made a passing reference to Zillow — the Seattle online real estate company co-founded by Barton. (As I noted in my story last month, Zillow, which was backed by Benchmark, had already launched a similar concept to Nextdoor called Neighborhood Pages).

Benchmark’s Harvey sent an email in June 2007 to one of Fatdoor’s angel investors stating: “We don’t have and are not looking at anything that is a direct competitor. Some of our companies Billow [sic] and Yelp are tangential. We will need to make sure that they are comfortable but my guess is that they are better partners than competitors.”

But a few weeks later, Benchmark pulled out of the possible financing round, and Fatdoor went on to raise $5.5 million from Norwest Partners. The suit notes:

Within two weeks of the closing of the second round of funding, Benchmark began an ill-conceived scheme to unfold and destroy Plaintiff and Fatdoor, Inc.’s focus around neighborhood social networking, so that they could come up with their own concept through the confidential information that they had learned. As a starting point, Benchmark sought to interfere with the operation of Fatdoor, Inc. and to influence a replacement of Plaintiff as the Chief Executive Officer, a person whom they knew to be the lead inventor and thought leader in the neighborhood social networking space.

The suit notes that partners at Benchmark had received a confidential executive summary, and Abhyanker had “spent several hours at Benchmark disclosing the entire concept in detrimental reliance on Benchmark’s written assurances of confidentiality and no conflicts.”

The suit provides some interesting reading on the behind-the-scenes maneuverings of startups and venture capital. Full copy of the lengthy suit on All Things D.

Comments

  • Mason B.

    “There’s not much an entrepreneur can do”  Not true at all.  I’m a patent attorney and this is exactly why I always tell anyone that will listen, file at least a provisional patent application before you go into this type of meeting and disclosure your idea.  You can do it cheaply and if your idea is valuable enough to ask other people to put money behind it, it is valuable enough to wrap some amount of intellectual property protection around.  With a provisional application filed you can speak freely without worrying about whether someone will or wont sign NDAs. 

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