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.

IRS highlights key business tax topics for continued education on small businesses

In recognition of National Small Business Week, April 29 to May 5, which was a HUGE success, the Internal Revenue Service wants to remind everyone of several resources to help small business owners and self-employed individuals understand and meet their tax obligations. The new tax law changes enacted in December 2017 make it especially important for these groups to know about new provisions affecting them.

These resources includ:

  • A series of news releases on various topics including the sharing economy, home office deduction, cybersecurity and the Work Opportunity Tax Credit.
  • Tax tips about business provisions under the new tax reform law. Topics include tax law changes to depreciation rules and the employer credit for family and medical leave and how it benefits employers. Tax tips are written in plain language and can be subscribed to using the IRS’s Tax Tips email-subscription program.
  • Information for small businesses is also available through IRS social media channels including tax tips and other resources. Stay informed following the hashtag #IRSsmallbiz and help us spread these messages by sharing the @IRSnews, @IRSTaxPros and @IRSenEspanol tweets.

Other small business resources

The IRS encourages business owners to check out other webinars on the IRS video portal. The portal has presentations on a variety of small business topics. Business owners may also be interested in these sites:

More information

Major tax reform was approved by Congress in the Tax Cuts and Jobs Act (TCJA) on December 22, 2017. The IRS has been working to implement its provisions and give information and guidance to taxpayers, businesses and the tax community as it becomes available.

National Small Business Week: Remember to Check out these IRS.gov Resources

It is the start of 2018 National Small Business Week-  April 29 through May 5. This is the perfect time for small business owners and the self-employed to check out many online products to help them understand their tax responsibilities.

Here are a few of the products in the spotlight for this year’s National Small Business Week:

  • Sharing Economy Tax Center.  This web page provides fast answers to tax questions and links and forms about the sharing economy. People who are involved in the sharing economy are those who use online platforms to engage in businesses, such as renting a spare bedroom, providing car rides, and providing other goods and services.
  • Self-Employed Individuals Tax Center.  The Self-Employed Individuals Tax Center is a great resource for sole proprietors and others who are in business for themselves. This site has many handy tips and references to tax rules a self-employed person may need to know. Self-employed taxpayers will find information on topics, including how to make quarterly payments and business structures.
  • Small Business and Self-Employed Tax Center.  This online information center features links to useful tools, including Small Business Taxes: The Virtual Workshop and common IRS forms with instructions. Taxpayers can find help on everything from how to get an Employer Identification Number online to how to engage with the IRS during an audit. A link to the IRS Tax Calendar for Businesses and Self-Employed also provides at-a-glance key tax dates for businesses.

IRS Uses YouTube to Provide Tax Information to Small Business Owners

Welcome to Small Business Week!

During National Small Business Week – and any time of the year – small business owners can visit the IRS channel to watch a series of videos that can help them navigate tax topics that affect their business.

The small business playlist on the official IRS YouTube channel features several videos that might be short, but that pack in a lot of helpful information. The videos walk business owners through topics such as:

Five Signs of Small Business Identity Theft, New Protection Methods

Small business identity theft is a big business. Just like individuals, businesses can be victims too. Thieves use a business’s information to file fake tax returns or get credit cards.

Identity thieves are more sophisticated than they used to be. They know the tax code and filing practices and how to get valuable data. The IRS has seen a sharp increase in fraudulent business tax forms. These include Forms 11201120S and 1041, as well as Schedule K-1. These affect business, partnership, estate and trust filers.

Signs of Identity Theft

Business filers should be alert for signs of identity theft. They should contact the IRS if they experience any of these issues:

  • The IRS rejects an e-filed return saying it already has one with that identification number.
  • The IRS rejects an extension to file request saying it already has a return with that identification number.
  • The filer receives an unexpected tax transcript.
  • The filer receives an IRS notice that doesn’t relate to anything they submitted.
  • The filer doesn’t receive expected or routine mailings from the IRS.

New Procedures to Protect Businesses in 2018

The IRS, state tax agencies and software providers have ways to detect suspicious returns. However, some new measures can help validate returns in advance. The IRS and states are asking businesses and tax professionals to help verify if a tax return is legitimate. These procedures are new for 2018. Software for business tax returns will ask questions related to:

  • The person authorized to sign the return
  • Payment history
  • Parent company information
  • Past deductions
  • Filing history

IRS Offers Small Businesses a One-Stop Resource Center for Help Preparing, Filing and Paying Taxes

WASHINGTON — Small businesses across the country are preparing for their special day — Small Business Saturday – taking place on Nov. 25. The Internal Revenue Service wants new small business owners, including those involved in the sharing economy, to know that IRS.gov has an online resource center to help them learn all they need to know about the tax implications of running a small business. The Small Business and Self-Employed Tax Center offers a variety of useful tools that small business owners can access to prepare, file and pay taxes.

The Center is a virtual one-stop tax shop with an A to Z index that gives answers for most business-related tax questions. It includes the Virtual Workshop, an educational video series that walks small business owners step-by-step through the basics. New owners can learn the ins and outs of their taxes at their own pace with other educational tools and products linked from the page. One of the Center’s newest features is the Sharing Economy Tax Center for those who use various online platforms to rent rooms, provide rides and offer other goods and services. Those involved in the Sharing Economy may visit the Pay as You Go, So You Don’t Owe page to learn more about ways to avoid paying the Estimated Tax Penalty.

Getting an Employer Identification Number (EIN) is often the first step for new small businesses, and the Center’s page makes it easy. There are links to the downloadable tax calendar and a variety of videos. Figuring out what is the best form of business entity to establish is easier with the selecting a business structure section. It explains the tax implications of  setting up a Sole ProprietorshipPartnershipCorporationS Corporation or a Limited Liability Company (LLC) .

The Center features relevant tax forms and instructions for small businesses. It serves as a resource on how to handle employment taxes, if employees are part of a business, or figuring out self-employment taxes for the sole proprietor. The section on filing and paying business taxes details which IRS forms to use for what sort of business entity and when to file.

The resources on Small Business and Self-Employed Tax Center are not just for new small businesses but can be used for every stage of a small business lifecycle; from starting up and operating a business to selling or closing one. In addition, the page has information on topics like recordkeepingtypes of retirement plans and the Affordable Care Act.