Intellectual Property

Who Really Owns “Your” IP?

Authors: StartupPercolator

“This deal is standard.  Let’s close TODAY!!”  We’ve heard this so many times only to find out that the early stage technology start-up hasn’t fully protected its intellectual property and, as a result, funding gets delayed, or in some extreme cases, even cancelled.  Many start-ups have such laser focus on their business that basic house cleaning can get lost in the shuffle.  One fundamental protective task is to ensure that every company employee and consultant/independent contractor has affirmatively assigned any intellectual property developed for the company to the company.

While the US “work-for-hire” doctrine places ownership of copyrightable works created by employees within the scope of their employment with their employers as a default, this doctrine does not apply to patentable inventions or other forms of intellectual property created by employees, and often does not cover independent contractors for any form of intellectual property, including copyrightable works.  For many early-stage companies, certain team members who contributed work product cannot be classified as employees under applicable law, and therefore are effectively independent contractors.  Accordingly, absent an enforceable intellectual property assignment agreement, as a default, employees and independent contractors of a company may own the inventions or other work product despite being developed for the company.  Further, intellectual property assignment agreements often contain additional provisions beyond assignment that can be critical in relationships with employees and/or independent contractors.  For example, these agreements often contain confidentiality provisions, non-solicitation provisions, non-compete provisions (in certain jurisdictions), as well as provisions requiring employees or independent contractors to execute all necessary documentation evidencing employers’ ownership of developed work product, and granting employers powers of attorney to execute such documentation themselves if an employee refuses or is unable to do so.

It’s much easier to get team members to sign these assignment agreements at the beginning of the relationship rather then after the fact, particularly if there was a falling out (which unfortunately happens all too often).  Even when relationships end on amicable terms, once they have left the company, it can be difficult to track individuals or entities and obtain signatures to the assignment agreements.  Investors and acquirors care about this stuff, A LOT, and actively check for these agreements during their due diligence process.  At the end of the day, intellectual property is one of the only assets an early-stage tech start-up has, and protecting this asset is of paramount importance.

The good news is that it’s easy to manage your intellectual property assignment agreements.  There are form documents that your attorney can provide during the formation process.  Just make sure that every employee and consultant signs them along with their offer letters.  If for whatever reason these agreements have not been signed and you find out about this at a later date, get these agreements signed then, and also (crucial point!), make sure they cover the assignment of previously conceived or developed intellectual property.  Note that, when requiring employees to execute these agreements after their initial date of hire, in particular if these agreements contain additional restrictions on employees (e.g. non-competes), it may be advisable to pay additional compensation, as under certain circumstances and in certain jurisdictions, an employee’s continued employment may not be considered sufficient consideration for their execution.  Once you get into a routine, however, getting these agreements executed will become a well established part of your onboarding process.  Now, let’s close!!

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We have covered in past FTTWs how to value your startup and how much capital to raise. Once your startup decides to pursue equity financing, you should start to prepare for the investor due diligence process. On the business side, you will need to prepare a business plan and should take steps such as obtaining management references, interviews and background reviews, customer/user references, technical/product reviews, financial statements and business model reviews.

What Every Startup Needs to Know

On Wednesday, June 26th, Perkins Coie’s Palo Alto office hosted the startupPerColator event, “What Every Startup Needs to Know.” Lowell Ness, a Perkins Coie partner in the Emerging Companies & Venture Capital (ECVC) practice, moderated a panel which included Herb Stephens of NueHealth, Thomas Huot of VantagePoint Capital, Jennifer Jones of Jennifer Jones and Partners, Yuri Rabinovich of Start-up Monthly, and Olga Rodstein of Shutterfly.