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 6

By Debby Winters

In the last blog post we looked at how founders and stakeholders can claim IP. In this post we will examine how independent contractors could try to claim IP rights.

Startups often misconceive that hiring a contractor to create work for a business automatically gives the startup ownership rights of the work.  This is not always true and to ensure that the startup does owns all IP created in all startup-funded work, the startup should have independent contractors enter into an independent contractor agreement that states this is the case. Most often the agreement will contain an assignment clause stating that the independent contractor agrees to assign all inventions and IP to the company.

Additionally, startups frequently use independent contractors to create websites, software, marketing materials and prototypes for instance. Failure to implement written independent contractor or consulting agreements with suitable IP clauses that clearly establish the startup’s ownership rights to the IP prior to commissioning the contracted work can be devastating. This is particularly important if the startup plans to sublicense the work to others, make multiple copies of the work for sale, or hire others to modify the work.

Often the startup will agree to allow use for the consultant’s portfolio or work or other limited engagements. These are items open for negotiation between the startup and the contractor.

All agreements should be in writing and signed by both parties. It should be clearly stated 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; 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 or consultants.

While the approach taken with employees of the startup are similar to these, there are some differences so we will discuss those in the next post.

Failure To Establish Clear IP Ownership-What Every Startup Needs To Know Part 5

By Debby Winters

In the last blog post we looked at how the current employer of the founders might try to lay claim to the IP rights of the startup. In this post, we will look at the founders or stakeholders of the startup.

In many instances, multiple stakeholders contribute IP to the startup. As a general rule, IP rights belong to the individual who conceived of an invention or created the work first, absent any agreement to the contrary. Well-crafted written agreements between stakeholders and the startup can ensure all rights are assigned to the startup. For IP created before pre-incorporation, IP transfer via a written agreement, in exchange of company shares or for money, is recommended. If co-founders are involved in the formation of the startup, a founder agreement may be important in ensuring that the startup owns the IP. Such an agreement can prevent issues with respect to a departing co-founder later claiming IP ownership.

In our next blog post we will look at how independent contractors could try to claim IP rights.