This Article is written by Himani Singh, of Bhartiya Vidhyapeeth Deemed University. The article discusses whether it is legal to copy the business Model or business idea of another company or not.
Introduction
Imitating ideas from another business which is doing better in the market is not a new practice. For example A tomato seller when observe that the onion seller is making more value proposition and is having more gain switches to onion selling if he does not switch then he at least starts selling onion along with tomatoes so, this is not something new but imitation of business idea and business model has been applied throughout history.
Is it Illegal to Copy Business Model
No, it is not illegal to copy business model if done correctly. If it’s not done correctly then you become thieve but if you do it correctly then you can profit from it. It is all about knowledge that you acquire before imitating someone else’s business model. It is very evident that when we see other’s business model gaining more financial gain and name than our own. We try to imitate the business model of that company to gain same profit as the other business is gaining cause of its business model but the crucial part that one should be aware of before imitating or cloning another’s business model is that the business model is not protected and is open to the market and for people.
Business Model Copying from Startup by the Incumbents
In case of incumbents, the human factor is the restricting factor present in the transfer or copy of the business model from startups to the incumbents. We could analyze the case based on this where the business model of startup company got compiled by the incumbents
Comparative study of Amazon and Barnes and Noble
It wasn’t a hard task to copy Amazon at time of in late the 1990s’. It was just a simple startup trying to grow reselling books online. Incumbents were well aware of Amazon and its business model, they were just waiting and watching if Amazon can succeed using its business model. When the incumbents observed that Amazon had done a great job in reselling books then they took up the similar business structure. Barnes and Noble who was a big and famous stationary seller at that time tried to follow the similar business structure as of Amazon. But the question here is whether they were successful in doing so?Did they get the same success rate as of the Amazon?
The answer to it is no, not really. They tried to copy the Amazon business structure in reselling of books via online mode but they do not succeed in doing so the cause of the presence of the human factor in their traditional business model which hinder the growth of the business using the new model. The incumbents always had in their mind to protect the existing business and the fear and issues of the cannibalization, so their venture into the new business structure was half-hearted whereas Amazon was fully dedicated towards its online business model and its business structure
Case study of Amazon and Otto Versand
Otto Versand is the biggest mail order house company in Europe but why should a big mail order house company be afraid of a newbie like Amazon, reason was that time Amazon become more than just an online bookselling company, it was hard to believe that a newbie like Amazon has created a structure of warehouse and system which Otto adopted later after Amazon became a success in this area.
Copying Business Model from Mature Firm
Here we talk about copying the business model of a mature firm. The factor that plays a main role in this is that the company who is in the market from a long period of time has gained customers, partners, experience, marketing strategy and contacts which makes it hard for another company to copy and succeed using the business model of the mature company.
Case study of Geberit
It is a Swiss-based firm which did plumbing and maintenance work. They have created a business model of selling easy bathroom renovation and it was easy to copy and paste the business model of the Geberit but what was hard was that one cannot easily succeed in this if somebody is to follow the business model of Geberit in the same market cause Geberit was an old and named firm in Switzerland which provides technical services for plumbing to plumbers and has contacts. It was a named and trusted company for the services it provides so, it was difficult to copy the business model Geberit.
Is it Illegal to Copy Business Idea
People think that it’s illegal to copy the business idea of any firm but they don’t know that it is illegal only till a certain point otherwise it is completely legal to copy the business idea of another company. If one does copy the idea smartly and does not infringe on the legal rights of that company till the extent it is completely legal. Imitating business idea of a company is legal up to the point where it is legally protected under copyright, trademark, trade secret, patent and etc. laws and so the company imitating the idea should always be aware if the idea is protected or not, if one copy the unprotected idea of a successful company then it could help him to gain name and if he tries to copy a protected idea then he can be put in jail.
Case study of Facebook
Facebook has given the world a youngest billionaire Mark Zuckerberg but the idea of Facebook (online community) was stolen from its original creator. Orkut came before Facebook and the idea of Orkut was the same as Facebook launched later and when facebook come into the existence with the improved idea in the market the fame of Orkut started dimming which lead to the extinction of the Orkut and Facebook became the dominant social media site.
Case study of Whatsapp
Whatsapp gather its idea from the BBM pin concept of the Blackberry phone where people could send messages to anyone using the internet by sharing their pin but the flaw in that was it could only be used in the Blackberry phones, using the same concept Whatsapp came into existence with improved and developed features and it started being used worldwide because it was not restricted to any particular handset and replaced the use of pin numbers to message. Whatsapp took the place of BBM and it became extinct after a while.
Companies that Clone Ideas of Another Company
Everywhere from school to colleges and to the business world, people focus most on ‘innovation’ and try to bring out something innovative but if we will observe then it comes to our notice that most of the companies that are acing in the business world are those companies which have copied the business structure, idea, and practice of another company.
“It’s always easier when you’re starting a company to try to improve an existing idea,” Paul B. Brown
Indian Companies that Copy the Business Structure and Practise of Foreign Countries
There are some Indian companies that have copied the business ideas of the foreign-based companies which are as follows
Uber and Ola
Ola, an Indian company which provides the cab services in the Indian territory and it has followed the business idea of the foreign company that is, Uber. Ola got its idea from the foreign-based companies uber and it is currently competing with Uber in the Indian territory and doing quite well in the market.
Flipkart and Amazon
Amazon is an old foreign-based company which got its fame in the year 1990 and is known for providing online services. Taking inspiration from the Amazon two Indians working in Amazon created Flipkart and it is ruling in the Indian territory. Gaining its idea from Amazon and establishing the same practices in the Indian territory has turned out to be boon for the Flipkart establishers/entrepreneurs.
Companies from other Countries
Xiaomi and Apple
Back in the year 2014, chief design officer of global technology titan of Apple said that Xiaomi was good at theft. Xiaomi came up with a model Mi which is similar to the Apple iPhone. In present time the Chinese smartphone producer is worth more than $45 billion, and comes in the top five largest in the global industry.
Xiaomi ceased disclosing its annual sales figures in 2016, but 2015 revenues state that it was nearly $12.5 billion. Its revenue target for 2017 is $14.5 billion. Compared to Apple, whose fiscal was of revenue was $234 billion.
Google Homes and Amazon Echo
Amazon came up with a product where people could ask Alexa about anything and she answers and in the same manner. Google also came up with the same feature where you could ask Google to search for anything.
Steps to Protect Businesses Ideas and Models
There are certain steps which could be taken by the entrepreneurs to protect their business ideas and business practices. Those steps are as follows:
IPR Protection Methods
Copyright
If the idea is protected under copyright than the company which tried to clone the idea will get punished for the infringement of copyright act under Section 14 of Copyright Act and one who violates the copyright of anyone will have to go through the legal proceedings. All those ideas which are protected under Copyright Act can be copied only after getting permission from the owner. Without informing the owner and without his permission, if anyone copy and paste idea then it will be an infringement of copyright of the owner.
Trademark
This is an additional protection to a company by getting the name of the company registered under the Trademark Act. Name of the company is most closely tied with the purpose of the company and so if any case arises where companies get into any legal dispute of idea then by using the documentation which was filed during trademark registration the company could show that they were in the process of working on the idea and the date of the documentation will be important in depicting the exact date on which process of work on your idea started.
Provisional patent
If you invent something or bring the inventive idea to light, the right will get security under the Patent Act. While one is gathering and detailing more for its idea, he can protect his business idea under this for the period of 12 months.
Trade Secret
Trade secret covers mostly the formula of making something. Companies which have the certain type of formula for producing a certain type of commodity are covered under trade secret. For example, Coca-Cola has registered the formula of making the drinks and that formula is protected as a trade secret.
Other Methods of Protection from Cloning of Business Model and Business Ideas
Non-Disclosure Agreement
It is an agreement which is signed to not disclose business ideas to the workers and other employees or any associate of the company. Many investors won’t face the firm on this particular thing which could lead them to lose investors or have to give up on this agreement. Since the balance of power is in their favor, this may be something you’ll have to give up if you want investors. The same holds true for potential clients. Instead of requiring a signature, consider simply printing a confidentiality statement on your business plan.
Non-Compete Agreement
In the event that you employ somebody to help you, have him or her sign a non-compete agreement. A non-compete protects a person or entity from beginning a business that would compete or undermine your setup.
Documentation
Put as much in writing as possible, by getting everything in written one will have proof if in the case of the court trial.
Research the Recipient
Regardless of whether you’re relaying an idea to a potential investor, customer, or a contractual worker, do your part in inquiring about that individual or organization before your appointment. Data is so effectively accessible now, an entrepreneur can decide somebody’s reputation before choosing to work with that individual. Search for any dispute with previous partners and ensure that the individual has built up a positive reputation in his or her picked field.
Work-for-hire agreement
In the event that you contract somebody to help adjust your item, make a point to set it up so that you own any and all enhancements and developments made to the idea and business model. Anything they come up with is what you own not what they own till they are working for you. You will still need to list the individual who comes up with the improvement of an idea as a co-innovator in your patent, yet they will have no rights to your creation.
What About the Victim of Imitation
Yet, that leaves the precarious issue of the victim. The organization that did all the diligent work of coming up with a unique idea and putting it up for sale to the public just to have it grabbed away.
Having been forced to bear this, Hootsuite was among the first to create scheduling technology for online networking, enabling post to be drafted ahead of time and published days or weeks ahead. Very quickly, that feature was imitated by rivals, similarly, it might well help Snapchat and different organizations in comparable positions.
- All that a victim company can do is to keep improving and developing its market strategy.
- Keep the momentum of competition high with competitors.
Benefits of Legalizing the Copying of Business Models and Ideas
- The reason behind legalizing this method is to maintain the Competition in the market.
- To remove monopoly rule.
- Due to competition in market price, the prices of goods will become reasonable.
- To motivate the market to improve and grow.
- To protect customers from getting exploit due to of monopoly rule.
Conclusion
When something new comes into the market and it performs well, then its very easy to catch the eye of copycat companies. To gain the same profit and success they try to implement the stolen business model but we can save our ideas and business structures from getting copied by following the procedure given above or we could compete in the market by improving and developing.
