Common Intellectual Property Problems

One of the most highly scrutinized aspects of a technology company is its intellectual property; and whether the company truly “owns” everything it needs to operate its business and fulfill its obligations to customers. As part of most legal transactions, whether involving a financing, an acquisition, asserting IP against a third party, or even a collaboration with another company, confirmation that no third parties can step in and claim ownership of the company’s core assets is crucial.

Typically, each person that joins a start-up brings certain specialized skills and knowledge with them that makes them valuable to the new company. However, it is precisely this fact – as it is often the case that these skills were acquired and honed while working elsewhere – that can lead to questions surrounding ownership of IP.

It is important to consider who besides the company may try to assert an ownership claim against intellectual property that the company plans to use.

The Individual

Initially, the individual employee or consultant himself may claim ownership if he conceived of the idea or wrote code on his own time or under an ambiguous employment or consulting agreement. This is especially true if the individual is hired as a contractor, as opposed to an employee. Similarly, any transfer of IP (e.g., from a founder into the company) must be evidenced by a writing and supported by some form of consideration, typically an ownership stake in the company. It is imperative that every individual, including founders, employees and consultants, all execute some form of IP assignment agreement. While these agreements can take many forms, there are certain provisions that are critical.

Previous Employers

Beyond the individual, a previous employer may stake a claim in the IP. For example, if a programmer working on the Exchange Server product for Microsoft has an idea for a new email protocol and interface, and, in his spare time develops a prototype that eventually becomes the basis for a start-up, Microsoft may claim that the IP is theirs based on the scope of the programmer’s employment and other facts. In such cases, it is critical that new employees, especially those bringing technical expertise to the company, provide copies of prior employer agreements and dutifully list out any “excluded IP” that may not be transferrable to the new company. This list should include any technology that the new employee believes is “owned” by his prior employer(s).

Universities

In some cases, IP may be created as a result of research done at a university. As a general rule, most universities have a policy stating that IP created in furtherance of a graduate degree is considered property of the university. The degree to which a university will sell or license that IP to a start-up varies from school to school, but it is important to understand that in order to effectively commercialize and possibly maintain the proprietary nature of the IP, the company may need to obtain ownership of or license rights to the IP.

Government

Valuable IP may result from research funded by the U.S. or a foreign government. In many cases, the ownership of the IP will be dictated by the terms of the research grant, in which the IP is owned by the individual (or entity), but subject to certain intervening rights of the government to the IP.

Conclusion

In each of these cases, it is important to (i) identify any IP that a new employee or contractor may be bringing to the company, (ii) determine the proper ownership of the IP, (iii) document the ownership, (iv) obtain from third parties any rights that are necessary for the operation of the company, and (v) have each employee and contractor execute a proper IP assignment form as a condition of employment or engagement.