The Cofounder Departure Problem
Startup cofounders share everything during the company-building phase: ideas, code, customer relationships, and proprietary methods. When a cofounder leaves and the relationship turns adversarial, that shared knowledge becomes a legal battlefield. The departing cofounder knows your secrets; the question is whether they can use them.
This guide focuses on California and U.S. federal remedies (CUTSA, DTSA, CFAA), but also addresses cross-border scenarios where code was developed in the EU or by EU-based developers before a U.S. company existed. Many cofounder disputes involve exactly this pattern: foreign development, then U.S. misappropriation.
A technical cofounder leaves (voluntarily or involuntarily), joins or starts a competitor, and the remaining founders discover that:
- Source code was copied to personal devices before departure
- Customer lists and contacts were exported
- Proprietary algorithms appear in the competitor's product
- Key employees are being recruited away
What Makes This Different From Employee Theft
Cofounder IP disputes are legally more complex than typical employee trade secret cases because:
California law prohibits non-compete agreements (Business & Professions Code 16600), so you cannot prevent a departing cofounder from working in the same industry. However, California strongly protects trade secrets through CUTSA, and federal law (DTSA, CFAA) provides additional remedies. The challenge is proving that the cofounder is using protected information rather than general skills and knowledge.
In many startups, significant code and IP are created outside the U.S.—often in the EU—before a U.S. company exists. When disputes arise, foreign law typically governs initial ownership and co-authorship, while U.S. law governs later misappropriation and infringement occurring here. This is critical: a U.S. court will apply EU copyright principles to determine who owns what, then apply U.S. copyright/trade secret law for infringement claims and remedies.
Under EU law (including the Software Directive 2009/24/EC and national implementations), copyright in software vests in the individual authors who created it—not automatically in any company. Without written IP assignments, two cofounders who built code together are typically joint authors and co-owners under EU law, each with rights in the work. This fundamentally shapes enforcement strategy.
Key Questions to Answer Early
Legal Claims Against Departing Cofounders
Multiple overlapping legal theories may apply to cofounder IP theft. Strategic case selection depends on the strength of evidence for each element and the remedies available.
Required Elements
- Information qualifies as a "trade secret"
- Reasonable measures to maintain secrecy
- Acquisition by improper means OR
- Disclosure/use in breach of duty
Key Advantages
- Federal court jurisdiction
- Ex parte seizure in extraordinary cases
- Nationwide service of process
- Attorney fees for willful misappropriation
Applicable When
- Access exceeded authorization
- Information obtained from "protected computer"
- $5,000+ in damages (for civil suit)
- Intent to defraud
Key Features
- Similar definition to DTSA (secret, valuable, reasonable steps)
- Third-party liability if they knew or should have known
- Injunctions, seizure, damages available in EU courts
- May support parallel EU enforcement or strengthen U.S. claims
Key Points
- Must own copyright (via assignment or work-for-hire)
- Registration required before suit
- Statutory damages up to $150K/work (willful)
- Independent creation is a defense
Limitations & Risks
- Requires good-faith belief you own the specific code
- Co-ownership disputes make DMCA risky (512(f) liability)
- Private repos may not be addressed same as public
- Counter-notices can restore access quickly
Key Implications
- Partners owe duties not to divert opportunities
- Applies under both U.S. state law and EU member state law
- Supports claims independent of copyright/trade secret
- May require accounting of profits from diverted assets
Elements
- Fiduciary relationship existed
- Breach of duty of loyalty or care
- Causation and damages
- May support disgorgement of profits
Common Agreements
- Confidentiality/NDA
- IP Assignment Agreement
- Founders Agreement
- Employment Agreement (confidentiality provisions)
California's CUTSA preempts most common-law claims that are based on the same facts as trade secret misappropriation. Claims for breach of fiduciary duty, conversion, and unfair competition may be preempted if they're really just trade secret claims dressed up as other theories. Structure your complaint carefully.
Joint Authorship, Co-Ownership & Who Can Sue Whom
When two founders write code together without contracts, they are often joint authors and co-owners of the copyright. This has major implications for enforcement strategy:
- A co-owner typically cannot sue another co-owner for "infringement"
- Disputes become about fiduciary duties, partnership breaches, and accounting
- This limits DMCA takedown leverage when ownership is genuinely shared
- Each co-author can sue infringers independently
- But one co-author cannot unilaterally license the full work to third parties
- Strong argument that departing cofounder needs consent to give code to competitor
If your cofounder wrote most of the code before any company or IP assignments existed, expect them to argue they are a co-owner, not a "thief." Your strategy must address co-ownership and partnership/fiduciary duties—not just "you stole my code." The strongest theories often involve trade secret misappropriation, breach of partnership duties, and the competitor's knowing participation in misuse of jointly-owned assets.
What Qualifies as a Trade Secret?
Under CUTSA, a trade secret is information that (1) derives independent economic value from not being generally known, and (2) is subject to reasonable efforts to maintain secrecy. Common startup trade secrets include:
- Proprietary algorithms
- Architecture decisions
- Optimization techniques
- Security implementations
- Customer lists and contacts
- Pricing models and margins
- Sales strategies and pipelines
- Vendor contracts and terms
- Product roadmaps
- Development methodologies
- Training data (for AI/ML)
- System integration techniques
Common Cofounder Departure Scenarios
- Legal Claims: Trade secret, CFAA if systems accessed post-departure, breach of fiduciary duty if they were planning while employed
- Key Evidence: Timeline of product development, code comparison analysis, access logs from departure period
- Challenge: Proving they used trade secrets vs. general knowledge
- Legal Claims: Trade secret, CFAA, copyright if code is copied verbatim
- Key Evidence: Git logs, email records, device forensics, cloud storage access
- Challenge: Proving the code was actually used, not just taken
- Legal Claims: Tortious interference, breach of fiduciary duty (for the cofounder), potential trade secret if employees took information
- Key Evidence: Communications during employment, timing patterns, employees' access to confidential information
- Challenge: In California, employees have the right to change jobs; must show improper solicitation or trade secret use
- Legal Claims: Declaratory judgment on ownership, breach of cofounder agreement, potentially fraudulent transfer if IP was assigned to competitor
- Key Evidence: IP assignment agreements, founding documents, employment agreements, contribution timeline
- Challenge: California work-for-hire doctrine is narrow; without written assignment, ownership can be disputed
- Legal Claims: Trade secret (if customer lists are protected), breach of fiduciary duty, tortious interference
- Key Evidence: Customer list protection measures, communications with customers/investors, timing of approach
- Challenge: Personal relationships aren't trade secrets; must show use of protected confidential information
- Legal Claims: Trade secret (if still secret), breach of confidentiality obligations (if surviving provisions)
- Key Evidence: What agreements survive termination, whether trade secrets are still secret, proof of actual use
- Challenge: Statute of limitations (3 years CUTSA), proving they didn't independently develop
- Legal Issues: Foreign law governs initial ownership/co-authorship. U.S. trade secret and copyright claims apply to misappropriation occurring here. Choice-of-law analysis required.
- Key Evidence: Foreign development timeline, repo history, recruitment communications, git commits at competitor (obtained in discovery)
- Challenge: Proving foreign-created code is being re-used (not clean-room rebuilt). Dealing with joint authorship defenses. Coordinating foreign-law expert opinions.
In almost every case, the departing cofounder will argue they're simply using general skills, industry knowledge, and ideas they naturally learned on the job - not trade secrets. California courts protect a person's right to use their training and experience in subsequent employment. Your case depends on showing they took and used specific, identifiable trade secrets, not just carried their experience to a new job.
Evidence Preservation & Proof
Trade secret cases are won or lost on evidence. The moment you suspect misappropriation, your priority is preserving what you have and gathering what you can legally obtain.
Digital evidence disappears quickly. Cloud logs expire, devices get wiped, and memories fade. If you suspect trade secret theft, engage forensics and legal counsel within days, not weeks.
Evidence Preservation Timeline
What Courts Want to See
| Evidence Type | What It Proves | How to Obtain |
|---|---|---|
| Access Logs | What the cofounder accessed before leaving, unusual patterns, bulk downloads | IT systems, cloud provider logs (request before they expire), email server logs |
| Device Forensics | Files copied to external drives, personal cloud uploads, deletion attempts | Forensic imaging of returned devices, MDM logs if deployed |
| Code Comparison | Actual copying vs. independent development, structural similarity | Expert analysis comparing your code to competitor's (may require discovery). In cofounder-to-competitor cases, the strongest evidence often comes from comparing your repo history to the competitor's git history—typically requires formal discovery or negotiated forensic protocol. |
| Communications | Planning before departure, coordination with future employer/investors | Company email archives, Slack history, discovery of personal communications |
| Timeline Evidence | Impossibly fast competitor development, planning while employed | Public records, product announcements, hiring patterns |
| Trade Secret Identification | That specific information qualifies as protectable trade secrets | Internal documentation, declarations from technical experts, security measures |
Never access the cofounder's personal devices or accounts without authorization. Don't have employees infiltrate the competitor. Don't misrepresent yourself to obtain information. Illegally obtained evidence can sink your case and expose you to counterclaims.
Proving "Reasonable Measures" for Trade Secrets
You must show you took reasonable steps to protect the secrecy of your trade secrets. Courts examine:
Remedies & Litigation Strategy
Depending on the strength of your evidence and the urgency of the threat, different remedies may be appropriate. Many cases settle quickly once serious legal action is initiated.
Available Remedies
| Remedy | What It Does | When to Pursue |
|---|---|---|
| Temporary Restraining Order (TRO) | Immediate injunction (hours/days) without notice to defendant in emergency situations | Imminent irreparable harm, evidence of ongoing theft, competitor about to launch |
| Preliminary Injunction | Injunction lasting through litigation, stops use of trade secrets during case | Strong evidence, likelihood of success on merits, irreparable harm |
| Permanent Injunction | Final order preventing use of trade secrets, may include time limit or be permanent | Victory at trial or summary judgment |
| Actual Damages | Compensation for losses caused by misappropriation (lost profits, development costs) | Can prove specific financial harm |
| Unjust Enrichment | Disgorgement of defendant's profits from using trade secrets | Defendant profited, may be easier to prove than your losses |
| Reasonable Royalty | What defendant would have paid to license the trade secrets legitimately | Hard to prove actual damages or profits |
| Exemplary Damages (2x) | Double damages for willful and malicious misappropriation | Clear evidence of bad faith, intentional theft |
| Attorney Fees | Recovery of legal costs from defendant | Willful misappropriation (CUTSA) or bad faith claim/defense |
| Ex Parte Seizure (DTSA) | Federal court orders immediate seizure of trade secret materials without notice | Extraordinary cases, defendant likely to destroy evidence or flee |
Litigation Strategy Considerations
- Emergency TRO applications possible ex parte
- Preliminary injunction hearing within weeks
- But: exposes your evidence and strategy early
- Return of all materials and data
- Injunctive commitments
- Monetary settlement
- Non-hire/non-solicit agreements
- DTSA provides federal jurisdiction
- Copyright claims require federal court
- Consider local rules and judge experience
In many cases, a prompt, well-supported cease and desist letter followed by immediate litigation filing creates enough pressure for quick resolution. Defendants who thought they could get away with theft often settle once they see serious legal action backed by forensic evidence. The key is acting quickly while evidence is fresh and before the competitor gains market traction.
Defense Considerations
Before initiating litigation, consider potential defenses and counterclaims:
- Independent Development: They claim they built it themselves without using your secrets
- Not a Trade Secret: Information was publicly known or not adequately protected
- No Improper Acquisition: They had legitimate access and no duty of confidentiality
- General Knowledge: They're using skills and experience, not specific secrets
- Ownership Dispute / Co-Ownership: In no-agreement scenarios, expect: "I wrote 70% of the code before any company existed—I'm a co-owner, not a thief, and I'm free to use my own work." This is the most common defense in cofounder disputes without IP assignments.
- Foreign Law Shields: If code was developed abroad: "Under [EU/foreign] law, I'm a joint author with independent rights to exploit the work."
- Unclean Hands: Your own misconduct bars equitable relief
When code was developed in the EU and misappropriation occurs in the U.S., courts typically apply a split analysis. Following cases like Itar-Tass v. Russian Kurier, U.S. courts will look to foreign law to determine ownership and co-authorship (who owns what), then apply U.S. copyright and trade secret law for infringement/misappropriation claims and remedies. This means you can still bring DTSA, CUTSA, and copyright claims in federal court—but must be prepared to prove ownership under the foreign law that governed when the code was created.
Take Action: Next Steps
If you're facing a cofounder IP dispute, time is critical. Here's what you should do now:
Schedule a Case Evaluation
I handle cofounder IP disputes for California startups. During a case evaluation, we'll discuss your situation, review the evidence you have, and map out your options.
- All agreements with the departing cofounder
- Timeline of events (founding, departure, competitor activity)
- Evidence of misappropriation you've gathered
- Description of your trade secrets and how they were protected
- Information about the competitor and their product
Trade secret cases have statute of limitations issues (3 years under CUTSA), but more importantly, evidence degrades quickly and competitors gain market position every day. If you suspect a cofounder has stolen your IP, the time to act is now.