The following is a list of the five most common legal mistakes I have seen made by startups with respect to protecting their intellectual property.
- IP Ownership. Founders often fail to transfer title to patents and trademarks to the company. I have seen falling outs arise between management and founders who later refuse to transfer the IP. Although there may be legal recourse, avoid future problems by having founders immediately transfer patents, trademarks, trade secrets, and other related IPs to the company.
- Intellectual Property Assignments. I have seen several entities engage software or other technology consultants to create technology or source code, without proper agreements. In certain states, including, California, without a specific provision assigning ownership of “works” to the company, the third-party developer may have an equal right and claim of ownership to the intellectual property they create, even if they are paid to create it. Therefore, include appropriate work product assignment provisions in Consulting Agreements.
- Waiting Too Long to File for Patent Protection. Companies often have tight budgets and would rather spend money on marketing and customer acquisition, than ensure their ideas are protected. Invest reasonable resources in the beginning, to investigate patentability and file necessary protection.
- Starting a business while employed by a competitor, or hiring employees without first checking their agreements with the current employer. If someone is currently working for a company, they may be subject to liability for starting a competing business, and depending on agreements to which they are a party, any inventions created for the new business could be deemed the property of the employer. Even after leaving an employer, one still cannot use or disclose the employer’s trade secrets. It also helps to know whether potential recruits are subject to covenants not to compete. States vary in terms of how enforceable they are, but one shouldn’t assume they are not. Personnel files should be reviewed, and recruits should check theirs, to be certain that a covenant not to compete or an assignment of inventions wasn’t included in a prior non-disclosure agreement. Companies should also have employees and consultants represent and warrant that they are not bound by non-competition agreements and that they will not disclose or use any protected information of prior employers.
- International Intellectual Property Protection. Patents are granted on a country-by-country basis. A tremendous amount of money may be spent in developing a brand and patenting an invention in the United States, yet when the product is shipped overseas it could violate foreign patents or trademarks. A company should identify its likely markets, and consider how much to spend to insure that trademark and patent protection is available in those markets.
The information contained in this article is strictly for educational purposes and is not intended to be legal or tax advice or to be relied upon by anyone without doing their own research, and consulting with legal and tax advisors.