Never Do Tomorrow What You Can Do Today – Make Sure Your Agreements Assign Intellectual Property Presently!

Founders should make sure that their companies’ agreements assign intellectual property presently.  In other words, an agreement should provide that the assigning party (the “assignor”) “hereby assigns” to the company the intellectual property in question.  Providing that the assignor “hereby agrees to assign” to the company intellectual property is not good enough.  Such language can be interpreted by courts to mean that the assignor has merely agreed to assign the intellectual property at some point in the future.  If the assignor later refuses, or is unable, to make such assignment, the company may be left empty-handed.

The assignment of intellectual property can arise in a variety of contexts.  At a company’s formation, founders may assign previously developed intellectual property to the company pursuant to a technology assignment agreement or a contribution agreement.  At the end of a company’s life cycle, a company may assign its technology to a buyer in an acquisition or to its stockholders or creditors in a dissolution.  Most commonly, a company will enter into a proprietary information and inventions assignment agreement with its employees or a consulting agreement with its independent contractors whereby such service providers assign to the company inventions produced in connection with the provision of services.

Such a shortcoming in a company’s agreements is often-times discovered when due diligence is being performed on the company, such as in anticipation of a financing, acquisition or IPO.  Depending on the importance of the intellectual property that has not been properly assigned, this has the potential to delay or even kill such a transaction.

Dealing with “Dead Equity”

“Dead equity” refers to company stock owned by individuals and entities no longer contributing to the company. In general, there are two types of dead equity seen on emerging company cap tables: Departed founders/employees. A co-founder or early employee leaves a company or no longer significantly contributes […]