Is Everyone “All In” on Committing Their IP to Your Business?

Tuesday, October 18th, 2016

At the signing of the Declaration of Independence, Benjamin Franklin quipped, “We must, indeed, all hang together, or most assuredly we shall all hang separately.”

The same “all in” approach is crucial to giving a new business venture a chance to succeed – either a startup or an existing company launching a new product or service.

Things sometimes come apart when key personnel in a business venture fail to pledge all of their relevant intellectual property (“IP”) to it. Someone might later take his IP and leave, thereby blowing up the venture.

Stakeholders must agree up front in writing to put all of their relevant IP into company ownership so the company will have the IP it needs even if someone leaves. Indeed, putting all relevant IP in the company pot might be what keeps the team together.

This means discussing what must be put in and what restrictions will be placed on someone who later leaves the company or is fired. There’s a tradeoff between putting the company in a strong IP position and allowing participants flexibility after leaving.

Let’s look at a few discussion items:

Patent Rights

Perhaps the venture will produce a patentable invention. A company usually does not own the patent rights to what its employees and contractors invent. Company inventors are a threat to take their patent rights for use elsewhere.

It’s conventional to have everyone assign to the company all patent rights arising from working for the company.

But what about patentable inventions related to the company’s business that someone created before startup or on his own time. Will ownership to those inventions be assigned to the company?

And what about a patent application someone might file after leaving the company? Should it be presumed that any patent application filed during a period of time after leaving is company property, because that technology probably was being developed by the departing person before he left?

Copyright Rights

A copyright covers an original expression, such as software code. While a company generally owns the copyright to anything an employee creates on company time using company resources, a company usually does not own the copyright to what a contractor creates. The company needs to secure an assignment of IP ownership from all contractors early in the relationship, while the company still has leverage to demand it.

As with patentable inventions, stakeholders need to talk about ownership of copyright property created by employees outside of the company’s work, such as work done before the venture started and work initially done outside of the scope of employment.

Watch out for any use of copyright property, such as computer code, that was created by someone for another job, or that was found on the internet. Can and will ownership of that material be assigned to the company?

Trade Secrets

A trade secret is any information that’s valuable to a company because the company has kept it secret. Common examples of potential business trade secrets are manufacturing processes, internal cost information, and business plans.

It’s conventional for everyone to agree to not divulge the company’s trade secrets and to use them only for company business.

The difficult issue for stakeholders is deciding just how expansive the written list of company trade secrets will be. The more expansive it is, the more restricted someone will be when leaving the company for another job or venture.

A big failure point here is lack of clarity over exactly what information is a company trade secret. Such failure can lead to an expensive fight later over what information belongs to the company.

Employment Law Issues

Does everyone sign a non-compete? A non-compete agreement keeps someone associated with a company from competing with it for a period of time after leaving – such as preventing work for a competitor.

Whether to sign non-competes is a tough call. A non-compete could prevent someone who leaves or is fired from earning a good living. It can lock you into your job. But that incentive to not leave helps the company.

Also, does everyone sign a customer non-solicitation agreement? That keeps someone who leaves from soliciting business from the customers of that company. It discourages sales personnel from defecting, but it can make it hard for someone in sales to earn a living after leaving.

Finally, will everyone sign an employee non-solicitation agreement, to keep anyone who leaves from then recruiting fellow employees to join him elsewhere?

Overall, you can work these issues out if you address them at the founding. But if you wait until there’s something valuable to take from the company or until times get rocky, it may be too late to get the buy-in the company needs.

Written on October 17, 2016

by John B. Farmer

© 2016 Leading-Edge Law Group, PLC. All rights reserved.