Most entrepreneurs understand that protecting their intellectual property ranks atop the list of key check-off items when founding a new company. Nevertheless they often fall victim to the most common IP mistakes made by other company founders. To help founders avoid such problems, Goodwin Procter partner and Founders Workbench contributor Steve Charkoudian hosted a recent “On Air” Google Hangout with The Capital Network to discuss the most common IP mistakes founders face when launching a start-up.
As Steve noted at the outset of his presentation, the “people who matter” to founders – capital sources such as venture capital and angel fund leaders – also care about these important IP tips. The following summarizes Steve’s recommended tips to help founders avoid the most common IP mistakes:
- Remember: you and your employees (and contractors) signed IP agreements with prior employers. Review these previous agreements! Many of the IP-related assignments made in these agreements seem fair, but can implicate ideas that founders developed while working elsewhere. Traps abound in these, which seek to capture “any IP developed while employed” or similar such language. Many founders don’t recall exactly what previously-signed non-competes and other agreements contained, and it can be difficult to get previous employers to share those documents upon request. Attorneys must assume the worst absent actual agreements to review. Note that investors will scrutinize these deals prior to committing funds.
- Buying the domain name does not ensure trademark protection. Protecting your brand also requires at least DIY “knockout” trademark searching to determine if you can use the name of the company and its products/services. Broader searches by trademark search firms can run $1,500 and up plus attorney review time.
- Don’t overthink third-party patents. Focus first on developing your product or service. It’s a good idea to conduct at least a cursory DIY patent search to identify any patents owned by known competitors that block your proposed product or service, but don’t let it distract you from building your business. Early-stage companies likely don’t need to worry about patent-holding companies – or patent “trolls” – until later stages of success attract their revenue-seeking attention.
- Know the type and licensing terms of your open source software. Basing your commercial closed code product or service on open source software without understanding the terms of the license can be detrimental to the success of your company and could even kill future investment and acquisition opportunities. Founders should understand open source licensing terms so the software can be used without jeopardizing the confidentiality of your own source code, or the integrity of future revenue streams.
- Be sure to transfer existing IP to the company you’re founding. Investors want to see, usually in exchange for founder’s shares, a contribution of all IP of the founder that relates to the business under a Contribution and Assignment Agreement. This Agreement is entered into in addition to a Confidentiality and IP Assignment Agreement, which would cover the assignment of IP on a go-forward basis.
- Ensure company ownership of all IP developed by employees and contractors. Get written agreements – ideally as part of the new hire process – with employees that assign all of the employees’ rights in any IP developed by the employee that relates to the business, results from tasks assigned by you, or results from the use of company premises or property. You’ll need a similar agreement with each contractor, at least as it relates to the project that you give to the contractor. If you don’t have a thorough written agreement, the employee or contractor will likely own some or all of the IP that they create for you.
To learn more about how to avoid the most common IP mistakes when founding your company, watch the full Google Hangout with Steve Charkoudian.
To access helpful documents for protecting and transferring IP, visit the Founders Workbench Document Driver tool.