One of the most common and costly mistakes that an entrepreneur can make is not properly protecting the company’s intellectual property (IP). Failure to button up the IP on the front end can lead to more legal fees on the back end (at best) and the death of the company (at worst). Consider whether protecting your company’s IP should be on your list of New Years’ resolutions.
Here are three important tips for avoiding IP pitfalls:
1. Require all founders to sign a Founder Assignment of Intellectual Property
Typically, entrepreneurs are engaged in a variety of value-generating activities before they go to the trouble of forming a legal entity. Ideas are fleshed out. Business plans are drafted. Websites are developed. Trademarks applications are filed. Software is architected.
If you want to make sure those IP assets are owned by the company, all of the founders should be required to sign an Assignment of IP in exchange for the company’s issuance of stock to the founders. This document assigns to the company all of the IP conceived by a founder on behalf of the company before the formation of the legal entity.
Obtaining an Assignment of IP from all founders up front will help you avoid the difficulty of having to track down founders for the Assignment after they leave the company and the unwillingness of a former, jilted founder to assign to the company the rights to a key piece of IP. You have to own the key IP in your business to attract investors to your company.
2. Require all service providers to assign their work to the company
Many of your service providers will generate ideas, technology, inventions, designs, content, formulae, processes, and know-how on behalf of the company. Those are all IP assets. The company is paying for the services so the company should own the work product. Make sure that all of your service providers sign an agreement that assigns the fruits of their labor to the company.
In particular, companies whose primary product is software must be very careful to obtain the proper assignments from outside software developers to ensure that they have the ownership rights necessary to be able to license their software to future customers. Failure to do so can cause the company to fail.
3. Require all employees to sign Proprietary Invention and Assignment Agreements
Employees of the company are also developing IP assets on behalf of the company. Entrepreneurs should not assume that those IP assets automatically belong to the company because they are developed by employees rather than outside service providers. The company should require all employees to sign a Proprietary Invention and Assignment Agreement (PIIA) that ensures the company’s ownership of all IP assets developed by the employees for the company.
These are three good rules of thumb for protecting a company’s intellectual property. There are others as well. Our firm can make sure your company’s intellectual property is fully-protected and provide you with greater peace of mind.