Intellectual property issues often are among the most important considerations that a technology startup will encounter. A startup will face numerous issues involving developing a product, hiring qualified employees, raising capital, and more. With all of these issues, intellectual property can feel distracting, expensive, or contrary to the goals of just getting a product to market before someone else does.
However, intellectual property is often the most valuable asset of a technology startup. Protecting intellectual property can be essential to obtaining venture capital funding or preventing competitors from unfairly competing with you.
In this article, we provide 10 critical intellectual property strategies for you to implement.
1. Keep your employment work separate from your new idea
It is certainly scary to give up a current paycheck and take the risk of working long hours on a startup for no pay. However, one of the biggest pitfalls at the beginning of a company is when a founder starts working on their new idea at the same time they are working for someone else.
Conflicting obligations can put ownership of your new company’s intellectual property at risk. It is important to know what was done, what resources were used, and where the founding work was done. Know your employment obligations, including the obligations related to assignment of intellectual property and noncompetition. Most companies will require their employees to sign a Confidentiality and Invention Assignment Agreement, in which the employee acknowledges and agrees that any new ideas and inventions developed by the employee related to the business of the employer is owned fully by the employer.
Unless an employer expressly approves side projects (without claiming an ownership right), it is a bad idea to use company resources and time to do something other than your day job. A lot of people don’t want to tell their employer about their new idea and keep their project “under the radar.” This can be a problem, particularly if the new venture is closely related to the employer’s business.
2. Don’t let other people claim ownership of your IP or your company
Some of the best new ideas are developed over discussions with friends, in dorm rooms, or with other entrepreneurs over drinks or coffee. Let’s face it, it is fun to talk about exciting ideas and to get others’ ideas along the way. The informality of these discussions often cause people to submit funding applications together, to hold each other out as co-founders, and to loosely talk about equity shares.
When you actually have a co-founder, you absolutely have to agree on the terms of your relationship with the co-founder. Not doing so can cause enormous problems later. In a way, think of the founder agreement as a form of “pre-nuptial agreement.”
Here are the key deal terms you need to address in some kind of written founder agreement:
- Who gets what percentage of the company?
- Is the percentage ownership subject to vesting based on continued participation in the business?
- What are the roles and responsibilities of the founders?
- If one founder leaves, does the company or the other founder have the right to buy back that founder’s shares? At what price?
- How much time commitment to the business is expected of each founder?
- What salaries (if any) are the founders entitled to? How can that be changed?
- How are key decisions and day-to-day decisions of the business to be made (majority vote, unanimous vote, or certain decisions solely in the hands of the CEO)?
- Under what circumstances can a founder be removed as an employee of the business? (Usually, this would be a decision by the company’s Board of Directors.)
- What assets or cash into the business does each founder contribute or invest?
- How will a sale of the business be decided?
- What happens if one founder isn’t living up to expectations under the founder agreement? How is it resolved? (A favored approach is for any disputes to be resolved by confidential binding arbitration.)
- What is the overall goal and vision for the business?
- Does everyone agree that all intellectual property is owned by the company and, if not, how does the company ensure its right to use the technology developed for its benefit?
Informal or vague understandings that are not carefully documented are fraught with peril. With respect to friends and acquaintances, be careful in discussing ownership stakes and sharing of information. Keep records of where ideas came from, as well as of any sort of discussions about equity stakes. If a proposal is submitted to potential funding sources, it is good to keep a copy because future investors may want that information.
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