The skin of an unkilled unicorn: legal showdown with startup-billionaire Cruise

    While Gavin Belson (CEO of Hooli) was suing Richard Hendrix (Pied Piper) for the compression algorithm , they sawed a unicorn with artificial intelligence in the real world.

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    Recently, the American edition of Business Insider published newsthat deal is the acquisition of Cruise Automation Inc. by the American automotive giant General Motors (Delaware C Corporation), a startup developing a car with a self-government function (valued at $ 1 billion), may be suspended due to a conflict between the founders of the startup and Jeremy Guillory, claiming a stake in the company. The latter believes that he is a co-founder and partner of Cruise. Note, the planned transaction is one of the most expensive in the field of high technology in 2016 and the largest in the history of Y Combinator, the venture creditor company Cruise.

    As follows from the lawsuit of Cruise Automation Inc. to the California Supreme Court, these claims are based on the fact that more than 2 years ago, the founder and CEO of Kyle Vogt discussed in an e-mail correspondence with Jeremy Guillory possible options for cooperation in the development of the concept of a self-driving car. At the same time, less than a month after the start of correspondence, Guillory refused further information exchange. After that, Guillory made itself felt a couple of times, sending congratulations to the head of Cruise on dates significant for the company. Guillory did not demonstrate any claims to the company, mention of a stake in the company, possible partnerships or partnership status in the company.

    Based on the text of the published article and the statement of claim, no legally binding documents were drawn up between the parties, however, due to the specifics of local legislation, the very fact of the existence of negotiations on the conclusion of a transaction may be enough to declare your property right. In addition, in the application for funding sent to Y Combinator (it was this company that was the first venture financier in Cruiser) to attract financing, the name Jeremy Guillory was listed, although at the time of the provision of funds he already had nothing to do with Cruiser.

    Currently, Kyle Vogt has filed a lawsuit on his own behalf and on behalf of the company to recognize that Mr. Guillory is not entitled to a share in Cruiser, is not a partner of the founders, does not have partnership rights and the right to use the intellectual property of the company.

    We asked our permanent legal adviser, Vladislav Lurie, managing partner of FMF Legal , to comment on this story. Below is his rating.




    In our opinion, the current situation once again confirms the need for the correct relationship between the founders of the company between themselves and with any third parties: employees, partners (real or potential), customers and investors. As this case shows, when it comes to attracting a large amount of investment or sale of a company, a dispute may arise even from the fact of electronic correspondence. In order to protect themselves from such consequences and, if the startup is successful, focus on business, and not on litigation, the founders of the company should keep in mind the following.

    In many jurisdictions (and more recently in Russia - Articles 431–434 of the Civil Code of the Russian Federation) pre-contractual relations may have legal consequences for the parties. So, it must be borne in mind that the parties may be liable for pre-contractual losses incurred by one of the parties to the failed agreement in connection with the dishonesty of the other party in the negotiation process. In foreign jurisdictions, liability for guilt committed during negotiations (Culpa in Contrahendo) is provided for - such guilt combines cases of unfair conduct by a party, as a result of which the other party suffered losses.

    The applicable law may also contain provisions on the legal force of agreements that arose at the stage of negotiations, and both official and unofficial correspondence (which is part of the proceedings in the Cruise situation we are considering).

    In common law jurisdictions (USA, England), correspondence between the parties, interpreted as unambiguously agreeing on certain agreements, can be regarded as a full-fledged agreement to be executed, even before the fact of conclusion of the corresponding agreement in full form. In the Russian Federation, this practice is less common and at the current stage it is limited mainly to the use of pre-contractual correspondence (including electronic) as additional evidence, or as a clarification, the existence of certain wordings and understandings fixed in full form at a later stage.

    Also, do not forget about the need to sign an agreement on non-disclosure of information at any stage of negotiations, which should clearly state the rights and obligations of the parties (including employees, consultants, partners, owners - everyone who has access to such information) with respect to all elements of intellectual property, including production secrets, trade secrets and other.

    It is obvious that intellectual property is one of the most important assets of a technology startup, and the founders must take all measures to protect it, in particular, it is necessary to properly protect intellectual property, including know-how (production secrets), inventions, utility models, industrial samples and other with the correct registration of copyright holders. The protection of intellectual property can be fixed depending on the applicable jurisdiction and type of intellectual property in the following ways: registration of a patent or copyright, the introduction of a trade secret, the inclusion of copyright provisions in employment and service contracts, other forms.

    Many Western and Russian legal entities motivate their employees, providing for the possibility of their participation in the capital of the company, offering to purchase shares on certain conditions (vesting). Vesting (the right to secure the title to the owner in the future) is the awarding of company shares to an employee, carried out in accordance with a pre-approved plan upon the occurrence of certain conditions (mainly, working hours in the company): for example, each year of work 20% of the previously agreed quantity (gradual vesting - gradual consolidation of the right), or 100% of the agreed amount after 5 years of work (cliff vesting - one-time assignment). Thus, the employee does not receive shares of the company immediately, but on condition of working for the company for a certain period (share vesting period).

    In Cruise, by the way, this moment was provided for in the company's charter and internal documents (according to its plan, employees and partners provided for a one-time transfer of shares after one year of work in the company), which currently helps to protect its position in court against Guillory, who stopped working shortly after the start.

    In addition, employment contracts must be executed with all employees. If an employee has access to the “company secrets” in the course of his activity, or the employee makes intellectual property as part of his duties, then in order to protect such intellectual property, the law of Russia must introduce a trade secret regime, and the employment contract should explicitly provide for the creation of works employee who will be the property of the company.

    Well, of course, the recommendations common to any company - the relationship between the founders of the company should be clearly regulated: the company is properly registered, a shareholder agreement is entered into, shares of participation are indicated, responsibilities, level of involvement and areas of responsibility are fixed. When submitting documents to attract financing to accelerators or investment funds, only the founders of the company should be indicated in the application.

    Here are some of the points that startup founders should pay attention to to ensure the security of their intellectual property and to minimize the claims of those involved.


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