03. How to protect your intellectual property

03. How to protect your intellectual property

Common Startup Legal Issues from a LAUNCH Jam Session in April 2021:

Estimated Time

• Reading: ~5 minutes
• Video: ~23 minutes
• To Do: ~30 minutes

To-Do:

Disclaimer: These are best practices - not legal advice.

• Please talk to legal counsel for more specifics

Protect your intellectual property (IP) from the beginning

• Ensure you own all intellectual property (IP)
• Employees need a clean break from prior employers
• Do NOT use your work computer for any of your new company ideas
• Even if it is outside of working hours - it is possible your employer would own all the IP
• Do everything you can to ensure prior employer doesn’t have any IP ownership (or equity) claims over the new company
• Generally, founder IP is assigned as partial consideration for founder’s stock
• Post-incorporation, ensure everyone who works for the company assigns their IP to the company
• This is done by signing an IP employee agreement
• This includes founders, advisors, employees, consultants, etc.
• Relevant agreement is different depending on each person’s role
• Employee vs. consultant
• Ensure confidentiality language is also included in the agreement
• Complete all necessary IP filings and make sure appropriate protections are in place
• Trademark
• Protects the symbolic value of a word, name, symbol or device
• That company uses to identify or distinguish its goods or services;
• Especially important for consumer-facing companies
• Getting a corporate name by incorporating doesn’t necessarily mean you can use this from a branding perspective
• Run a trademark search before public launch
• Patent
• Gives a company the right to prevent others from making, using, or selling the product
• Best protection for a new product
• The ability to get patents on software has gotten more difficult with recent court cases
• Copyright
• Covers original works of authorship
• Like art, advertising copy, books, articles, music, software, etc.
• Trade secret
• There are no filings necessary, but need to keep things secret
• For example the formula for Coca-Cola

Top Insights

• There are a few baseline steps you should take to protect your IP and company
• The top one being IP assignment agreements
• If there's any overlap between what you want to work on and where you're currently working - be careful
• It is a better idea to leave before you start working on your idea.
• Everyone signing an IP assignment agreement is normal when closing a financing round
• This often includes retroactive agreement

Intellectual property is not a perfect science. You have to just do the best you can. - Jason

Intro

• The purpose of IP is the protection of ideas.
• IPs you can register with the USPTO (registrable IPs)
• Patents
• Trademarks
• Copyrights
• IPs you can't register with USPTO (non-registrable IPs protected through confidentiality agreements):
• Trade secrets

When you have a product what steps should you take to protect it?

• All founders, employees, consultants, and advisors should sign an IP assignment agreement
• This ensure the company owns all the IP developed
• If someone doesn't want to sign it, you should think long and hard about why that is
• Do they want more money or equity? Are they planning to go on and start their own company?
• You should not allow them to keep developing your product if they can walk right out the door with it.
• There are separate agreements for each type of team member.
• It's much more expensive to deal with IP-related issues in the future
• You need to make sure that everyone signs an IP assignment agreement as soon as possible
• Even if you are related or best friends

When should you trademark a name

• In some instances, it's going to be important to do this as soon as possible.
• Speak to a trademark lawyer to find out if you might infringe on another trademark before investing thousands of dollars to get one
• It depends on how critical it is to your business. If the company identity centers upon a certain word, it's important you do this as early as possible.
• You need money to enforce things. If you have a giant trademark/patent portfolio but can't enforce it, it's not useful. You have to think about the best use of your funds.
• Trademarks are relatively cheap.

Are startups getting involved in patents nowadays?

• Depends on the industry. More important in medical device industry or pharma than it is in the app world.
• Certain types of early-stage startups will file provisional patents. This gives themselves 12 months before applying for the patent.
• Patents are expensive.
• They can cost you tens of thousands or even hundreds of thousands of dollars.
• One of the risks of getting involved in the startup world is not having enough money to enforce your rights. The big companies with deep pockets are often capable of shutting startups down. That's why there is an ongoing push for patent reform.
• Some big companies like Tesla are saying they won't sue anyone. They'll let you use their patents under certain conditions. Samsung and Google are also cooling down their rhetoric.
• Companies that enforce are usually sending an invitation to license. They want payment in equity or cash. If it's a matter of competition, they may pursue a cease of operations

There are two main types of people who enforce patents

• People who are truly trying to protect their product and company. Their reasons are genuine.
• Patent trolls whose sole motive is suing people and making money that way.

What happens when two co-founders don't see eye to eye and move on to work on other similar ventures?

• As long as you can convince your future investors and employees that there is no overlap
• And you're not taking intellectual property then there is usually no problem
• They can also sign an agreement allowing both to use the IP developed in the old company.
• This creates two viable companies that compete on the merits.

If you build something using your own equipment, on your own time, does that IP belong to you or the company?

• Depends on your agreement with your employer.
• There are some agreements that state that the IP for anything you build belongs to the company.
• Even if it was built on your own time.
• This is why it is important to read your current agreement before starting your company.
• It also depends on which state you're in
• Different states have different employment laws.
• Founders and employees should be aware of the employee-mobility reality
• Be upfront with each other about these issues.
• Transparency is the key.

Highlights

• Everyone in the company should sign an IP assignment
• This should be a part of their employee agreement as early as possible.
• This includes anyone who
• Was part of the initial idea generation and conversations
• Touches code
• Talks to customers
• Secretary who answers phones
• Contractors
• Advisors
• Consultants
• Everyone!

Additional Resources:

• Wilson Sonsini IP 101
• Download one of the templates below (or find one elsewhere) and have employees sign as soon as they start
• Please talk to your legal representation if you have questions.
• Again these are best practices to be aware of, not legal advice
• https://www.docsketch.com/contracts/intellectual-property-agreement/
• https://signaturely.com/contracts/intellectual-property-agreement-template/
• https://www.pandadoc.com/ip-property-assignment-agreement-template/

To-Do:

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