Hackathons: Innovative business solution or a breeding ground for future competition?

Technology corporations around the world are increasingly using hackathons to harness the collaborative power of team-based competitions to help develop new products, but many don't take into account the potential downsides.

In an open corporate hackathon, a host presents hackathon participants with a prompt that typically reflects a market need.  Competing teams are given the opportunity to develop a solution to the problem, meeting potential business partners with other possible solutions along the way, and receiving feedback and constructive criticism from peers and/or the host itself on their final submissions.

This opportunity for input is a primary attraction of hackathon events.  But when corporations organize hackathons to develop new products from their internal product pipelines, what prevents second and third place teams from taking off with a winning idea and introducing a competing product in the marketplace?

Although Congress has yet to draft legislation specifically for hackathons, there are intellectual property and contract laws that provide corporate hackathon hosts with some potential protection from self-created future competition.

Imagine a scenario where a large cellular phone manufacturer hosts a 24-hour open hackathon to develop an application for streamlining and responding to customer service requests, addressing a problem identified after a year of customer focus groups and market research.

Imagine then that it launches the new application but soon discovers it faces fierce competition from a third-party group that adopted and improved the "second place" hackathon submission and licensed it to a close competitor.  Assume that the corporation learns that the third-party group even incorporated the features from the winning hackathon submission.  What legal redress is available?First, a host corporation facing this scenario should consider filing a patent application immediately to protect the critical features of the winning application, requesting expedited examination from the United States Patent and Trademark Office.  Patents subject to expedited examination often issue within twelve months.

Although this may seem like an eternity in the rapid world of app development, filing a patent application puts would-be competitors on notice that they may soon face potential liability for patent infringement.  Bear in mind, however, that there are public relations risks in this approach, as the corporation would be threatening suit against the very people it invited to collaborate at its hackathon.

Copyright law might also provide some protection from competitors attempting to piggyback on an idea from a hackathon submission.  A host corporation may be able to establish imputed corporate authorship under the "work-for-hire" doctrine (see Community for Creative Non-Violence v. Reid, 490 U.S. 730, 1989).

Under work-for-hire, "a work prepared by an employee" and certain "work[s] specially ordered or commissioned for use" can result in imputed authorship, such that source code written by hackathon teams may be owned by the corporate host, not the coders (see 17 U.S.C. § 101).

To succeed on this theory, though, corporate hackathon organizers must show "agency" between the corporation and participants as a proxy for "employment" (requiring direction and control over the participants), as well as payment of some consideration to each participant.

Organizers wishing to rely on work-for-hire should keep these factors in mind when structuring the competition and participant agreements. Note, however, that this strategy, if successful, may act only as a speed bump, as it may be relatively easy for a competitor to design around this protection by rewriting the source code.

Host corporations also may find protection in contract law.  Participant agreements are already standard in hackathons, but corporations may consider building more stringent requirements into the contract.  In addition to retaining worldwide royalty-free licenses on every participant submission, hosts could consider non-compete clauses, non-disclosure agreements, and license agreements granting the corporation the right of first refusal to purchase or license derivative works, all of which could potentially prevent hackathon participants from directly competing against the winning application with an equivalent product.

Even so, these agreements may be difficult to enforce (or, may be found altogether unenforceable), and the restrictive nature of the agreements could stifle the open and collaborative nature of hackathons.  Such agreements could alienate once loyal customers and admirers of host technology companies and disincentivize the best and brightest in the hackathon community from participating.Prior to hosting a hackathon, corporations should understand the risks and develop a plan for protecting intellectual property assets and discouraging third-parties from introducing  competing products.  Open hackathons are a great choice when brainstorming is needed and the corporate host seeks to capitalize on the creativity of the hacker community.  Alternatively, closed, internal hackathons may be a more prudent option, if the risk of public disclosure is too high.  In the growing realm of hackathons, a one-size-fits-all approach may no longer be adequate.

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