Almost every business, whether a startup or an established company, has Intellectual Property (“IP”). IP provides your business with a competitive advantage. Examples include a name, logo, invention, customer list, or website, all of which are valuable business assets that should be protected. For startups especially, successful companies must understand how to identify and protect their IP. Here are some pointers that every startup should consider.
1. Make Sure You Own the IP
In the early stages of a startup, individuals typically collaborate informally to develop their ideas, and there may be no formal agreements among them. But without a formal agreement as to ownership of the IP, disputes may arise. Further, the individuals in a startup may be bound by other agreements with their current employers, and may even be required to assign the IP to their employer. Therefore, ownership of IP should be openly discussed and agreed upon. When the company is formally set up, formal agreements should then be executed.
2. Prevent Inadvertent Disclosure
Startups typically share too much information with others in the beginning, whether out of excitement for the new endeavor or to attract investors. While disclosure of some information is necessary to build the business, confidential ideas or plans are at risk of accidental disclosure – and in some cases, the public disclosure of IP may adversely affect IP rights. To mitigate this risk, consult with an experienced IP attorney to help determine what information can be disclosed without compromising your rights. Also consider using a formal nondisclosure agreement.
3. Protect Your IP
Once a startup has identified its IP, it’s time to look to potential IP protection. Protection can come in the form of trademark, copyright, patent, or trade secret. The protection available depends upon the IP at issue. Determining the type of IP protection available at the start will help a startup plan and develop its internal policies and procedures and help secure its competitive advantage in the marketplace.
4. Develop a Strategy
A startup should develop a strategy for how it will continue to pursue and protect its IP. Developing an IP strategy will support the company’s growth from the beginning and also provide for an exit strategy. Work with a professional to determine an appropriate strategy that meets your goals and sets a framework to achieve them.
5. Learn How to Protect Employee-Generated IP
Most companies assume that any IP created by employees for their job automatically becomes the employer’s property – but this assumption is often incorrect, and can lead to lengthy and costly disputes. Generally, an employer’s right to such IP depends on the circumstances of the employee’s hire and whether the parties entered into an agreement that assigns the IP to the employer.Companies seeking to avoid such disputes should have employees sign an Inventions Assignment Agreement.
Without an agreement, although laws differ by state, the following general principles apply: (1) for employees employed to invent (i.e. engineers and scientists), the inventions are generally owned by the employer even if the employee did not sign an agreement; (2) for general employees (i.e. sales and marketing), who have not been hired specifically to invent, the general rule is that the employee owns such inventions if there is no agreement providing otherwise; and (3) for general employees whose inventions do not relate to the business of the employer, these inventions are generally owned by the employee absent an agreement.
6. Understand What “Work-for-Hire” Really Means
If your company is involved in software development, you’ve undoubtedly come across the term “work-for-hire.” Typically, companies needing software developed enter into written contracts with an independent contractor and insert the magical phrase “work-for-hire,” thinking it will automatically assign ownership of the IP to the company. However, entrepreneurs should know that works created by independent contractors constitute a “work-for-hire” only in very limited instances.
Works created by an independent contractor can constitute a “work-for-hire” only if: (1) the work is specifically ordered or commissioned; (2) the parties expressly agree in a signed written agreement that the work shall be considered a “work-for-hire”; and (3) the work is (i) a contribution to a collective work, (ii) a part of a motion picture or other audiovisual work, (iii) a translation, (iv) a supplementary work, (v) a compilation, (vi) an instructional text, (vii) a test, (viii) answer material for a test, or (ix) an atlas. 17 U.S.C. §101. Obviously, software does not fit neatly under one of these nine limited categories because it was not contemplated by the Copyright Act when drafted decades ago.
Some lower courts have determined that software programs satisfy the definition, but until there is a Circuit Court decision holding that computer software fits under one of the enumerated categories to qualify as a “work-for-hire,” the law remains uncertain. Companies should be aware that use of the phrase “work-for-hire” may not fully guarantee that ownership will be assigned in a software development contract. Thus, to ensure that all works prepared by the independent contractor are assigned to your company, the best approach is to use the “work-for-hire” recitation in conjunction with an express assignment provision.
When building your company, consulting with an IP professional to help understand your rights and how to protect them is well worth the effort.
Eryn Y. Truong, Esq., Counsel
P: (631) 738-9200 x309