What Every Startup Needs To Know: IP Pitfalls- Poorly Written Or No Agreements- Part Nine

By Debby Winters

Using poorly written agreements or no agreements at all can be a disaster for the startup. Not only is the valuation of a startup based on the IP that it owns, but also on the agreements with IP clauses. Examples are not just limited to things you typically think of as IP agreements but can include employment, consulting, funding, collaboration, settlement, licensing, research, and material transfer agreements. Thus, poorly drafted or non-existent IP-related agreements can be problematic for a startup.

Because of a lack of sufficient funding, many startups attempt to save legal expenses by using template IP-related agreements from a variety of non-professional sources, including the internet. However, such agreements can fail to include clauses that adequately protect the startup’s interest and in many cases, can include clauses that jeopardize a startup’s IP. Thus, when using IP-related agreement templates, the startups should have such agreements at the very least vetted by IP professionals. Startups can also do themselves a disservice by using an attorney who is not familiar with the nuances of IP law.

Many IP-related agreements, particularly research agreements, generally include confidentiality, publication, and IP clauses. The startup should review confidentiality and publication clauses to ensure that confidential information, including trade secret information, is protected from disclosure and that the startup has the right to review manuscripts and other materials containing confidential information before publication. With respect to the IP clauses, the startup should make sure the language allows for retaining its own IP and for protecting jointly developed IP.

Furthermore, with respect to patent license agreements involving a third-party licensor, startups need to make sure that the license agreement provides all the rights needed to commercialize the licensed technology, includes future improvements to the technology, and retains the right to sublicense the technology. The agreement should also have a sufficient termination clause in the event the startup needs to opt-out of the agreement.  The agreement should also specify the relevant field of use and possibly other fields for future expansion. Importantly, the startup should review patents to ensure that the commercialized product materials, methods, and tools are properly claimed with patent life remaining. This should be drafted and reviewed by an experienced IP attorney.

In conclusion to the series of blog posts dealing with common IP pitfalls for a startup, the process of bringing a new startup business to life and in launching new products to the marketplace can be an exciting time. However, many startups are so focused on bringing a new product or service to market that they fail to take the necessary steps to protect the associated IP. Failure to put an IP plan in place can cripple valuation and expose the startup to potential third-party infringement risk. In contrast, startups can protect and exploit their IP assets to build value and revenue by developing an IP plan as part of their conception, creating an action plan to protect IP assets including protection of confidential information, securing ownership rights to the IP, conducting freedom-to-operate searches, and ensuring properly drafted IP-related agreements are in place.

If you need help with your IP or with protecting it, let me know.

Failure To Establish Clear IP Ownership-What Every Startup Needs To Know Part 7

By Debby Winters

In the last post we examined how independent contractors could try to claim IP rights. In this post we will look at IP rights as it relates to employees of the startup.

The startup eventually will have employees and it is wise to have these employees enter into work-for-hire-type agreements that explicitly confer rights in the works to the startup. That can be accomplished through an employment agreement or through separate agreements.

Additionally, startups should have employees sign confidentiality and invention assignment agreements with clauses that clearly state the obligation of the employee is to assign all developed IP to the startup. Failure to include such assignment clauses can create ownership problems for the startup, especially if the employee leaves the company to work for a competitor or cannot be subsequently located

The agreements should also state that the startup’s confidential information is only for use for the benefit of the startup; require disclosure of ideas, inventions and discoveries related to the agreement or employment; and include a statement of ownership rights over ideas, inventions and discoveries. Recordable assignment of IP rights should be required to show clear ownership of inventions and other IP developed by its contractors and employees.

It is often advisable to get help from an experienced IP attorney in the drafting of such agreements.

We have talked about establishing clear lines of ownership for the startup IP, next we will look at the failure to identify third-party rights.

Failure To Establish Clear IP Ownership-What Every Startup Needs To Know Part 4

By Debby Winters

Failure to establish IP ownership rights can be a deal breaker in many business transactions. Due diligence analysis generally seeks to verify not only the startup’s ownership rights to each piece of IP but also to determine if there are any restrictions on its use. Typically IP ownership issues can be averted if addressed early, sometimes even before the incorporation of the startup.

Here are a few of the places where ownership should be established:

  1. Current Employment for the Founders
  2. Employees of the Startup
  3. Independent Contractors
  4. Startup Founders

In this blog, we will discuss the first topic and take up the other topics in subsequent blog posts.

Founders of many startups continue to work for their current employer while they establish the new company. The employer may have required that the Founder/employee sign a confidentiality or invention assignment agreement in which the employee agreed to assign all new ideas and inventions related to the employer’s business to the employer. This is particularly problematic if the startup product or service is closely related to the employer’s business as the employer may try to claim rights to the startup’s IP.

Thus, it is important that founders carefully review their current employment agreements and fully understand employment obligations, including IP assignment clauses and non-compete language. Employees should also consider discussing personal projects/inventions with their employer upfront to avoid ownership issues later down the road. Generally, employer resources or company time should not be used to develop projects for the startup company without the pre-approval of an employer and without the employer’s agreement not to claim ownership rights.

In the next blog, we will look at establishing ownership of IP with employees of the startup.

IP Plan- What Every Startup Needs To Know Part 3

By Debby Winters

Startups, from conception, need to determine several things about their intellectual property (IP) including (1) the role that IP will play in their business, (2) the IP tools that support their business model, and (3) their overall IP strategy. In many cases, a startup’s intangible assets may be the only assets and failure to fully consider IP during launch is the source of many missteps and oversights. In contrast, a well-structured IP strategy or plan is a proactive step toward seed funding and avoiding loss of IP assets, while minimizing the risk of third-party IP infringement.

A good IP plan should identify existing and future IP assets; provide a strategy for maintaining and protecting these assets; outline a strategy for conducting freedom-to-operate searches; and establish an IP-related budget. The initial step of identifying existing and future IP is critical as it can help the startup develop a plan for allocation of resources and capital to support the IP assets. Importantly, the information can be cross-referenced against the startup’s business and product development plans to develop, maintain, protect, and leverage IP assets. For example, if the IP assets include trade secrets, the IP plan should include procedures to protect the information such as the proper marking of the documents, establishing check-in/out procedures, limiting access to documents, and storing the documents in a secure facility or network section.

The IP strategy should also include a plan for periodic review of all agreements that relate to the IP to ensure all necessary legal IP safeguards are in place for new and departing employees, consultants, developers, and contractors. It is common to review the license agreements, but many times employment agreements, independent contractor agreements, and nondisclosure agreement are overlooked. This is unfortunate since employees, contractors, consultants, and developers can know many secret IP details that you want to keep a secret or protectable.

Equally as important to the IP plan is that it needs to be continually reviewed and revised as the business evolves. Finally, although a strategically thought out IP plan may include a business’s conscious decision not to pursue registered IP rights, oversight resulting in failure to protect these IP rights can be devastating.

Next time we will discuss the potential failure to establish clear IP ownership.

 

 

Not Establishing Confidentiality Protections- Startups

By Debby Winters

Before publicly disclosing its intellectual property (IP), a startup should balance the risks with the rewards of allowing the confidential and sensitive IP information to get out into the public domain.  Startups often misstep and disclose patentable subject matter at investor meetings, pitch events, or on company websites prior to filing a patent application. Unfortunately, public disclosure of an invention prior to filing a patent application can limit or even destroy patent rights. Such public disclosure can also destroy a company’s trade secrets.

Third-party conversations with those not under legal obligation to maintain confidentiality, such as a public pitch or presentation, a trade show, or publication are common examples of what can be considered a public disclosure to the patent office. If such disclosure is necessary, the startup should file a provisional patent application prior to the disclosure or at the very least have the third parties sign a written Non-Disclosure Agreement (NDA).

One caveat to that rule is that venture capitalists generally avoid signing NDAs because they deal with many startups and believe confidentiality obligations limit their contact and investment opportunities.  Furthermore, while speaking at trade shows or making a pitch, securing an NDA may not be feasible. In such instances, to avoid disclosing confidential information, the revealed information should be limited to generalities.

In the next part of this series we will look at the IP plan.

What Every Startup Needs To Know: IP Pitfalls- Part One

By Debby Winters

On their path to success startup companies often face significant risk and liability with respect to Intellectual Property (IP). The failure to adequately address IP issues can potentially lead to the permanent loss of these rights and could possibly create a litigation risk. Insufficient or nonexistent IP protection can also hamper business transactions, including seed funding and status as a desirable acquisition target.

In a series of blogs, we will look at some of the common IP pitfalls startups face and possible steps that startups can take to avoid those pitfalls and protect their valuable IP assets while at the same time reducing the risk of litigation.

Let’s start out by defining what an IP asset is.

The term “intellectual property” can be thought of as creations of the mind that are given legal rights commonly associated with real or personal property. These rights can and do have real economic value. These property rights are generally a result of either federal and/or state laws and include the commonly understood rights belonging to patents, trademarks, copyrights and trade secrets.

All businesses have some form of IP that provides a competitive advantage and helps generate profits. Many companies mistakenly believe that patent protection is the only form of IP protection and ignore the value of non-patent IP. However, startups should identify both patent and non-patent related IP assets when evaluating their IP portfolio.

Startups, no matter whether small or large, should develop an IP plan. This IP plan should identify both existing and future IP assets. In the next of this series, we will talk more about the IP plan; what it should include and how to put it together. Stay tuned!