Secure Your IP
For startups, clear ownership of intellectual property (IP) is imperative. Your company has to own all of the IP it relies on and on which you’ve built your business. Your intellectual property impacts the valuation of the company, and it determines how secure the company’s footing will be when a serious competitor comes along. Any potential investor will check to make sure that the IP is assigned to the company with full documentation as part of their diligence. If the company succeeds—which after all is what you and your investors are banking on—all your hard work will be in jeopardy without a secure IP foundation.
Not You, but the Company
Although it might feel like it, you are not the company, and the company is not you. It is the company, not the founders (or an employee, or an advisor, or a stockholder), that must own the IP. It may seem unimaginable that a key team member would ever separate from the company. But when the inconceivable becomes inevitable, the company will be able to continue because it is the clear owner of the necessary IP.
You Get an Agreement! You Get an Agreement! Everybody Gets an Agreement!
Intellectual property assignment agreements for everyone! Yes, everyone who is involved with the company and may have a claim to the intellectual property created by or for it should sign an agreement assigning the IP to the company. This includes employees, independent contractors, and advisors.
Other Possible Claimants
If the core IP of your business was the result of research done at a university (e.g. it was part of your graduate thesis) or through a government grant, the university or the government is likely to have rights to it. Talk to your lawyer about how to obtain ownership of the IP or license rights to the IP.
Now, Not Later
The right time to get your agreements in place is at the beginning of the relationship when everyone has the motivation and there’s nothing to dispute. For an employee, it’s when they are being hired. An IP agreement is an expected part of new hire paperwork. For founders, it’s when initial company equity is granted.
If you wait, it becomes difficult. Asking someone to assign IP to the company requires sufficient consideration. For a new hire, employment with the company is adequate if the IP assignment is a clear condition of that employment. If, on the other hand, you have an employee for whom IP assignment was not an employment contingency when they started, then you’ll likely have to offer other consideration (e.g. monetary payment, equity grant) as part of the agreement.
Wait, What’s the Document Called?
IP assignment agreements go by many different names. They can be stand-alone agreements or baked into employment agreements, consulting agreements, or advisory agreements. A typical Employee NDA or Employee Confidentiality Agreement contains IP assignment as well as non-solicitation, non-compete, and non-disclosure terms.
Before and After
There are two similar sounding, yet distinctly different types of agreements: the IP Contribution Agreement and the IP Assignment Agreement. For key team members, like your founders, both types of agreement may be needed. An IP Contribution Agreement assigns to the company any relevant IP that you created before you joined the company or before the company had even been incorporated. An IP Assignment Agreement assigns IP created after you started working for the company.
When joining a new company, it’s a best practice to call out any prior inventions that are being excluded from any assignment—IP that won’t be transferred to the new company. This includes pre-existing IP you created, such as a patent where you are listed as the inventor.
It’s Worth It
IP ownership is an area of tremendous scrutiny during any diligence process. Your company won’t see the light at the end of an investor diligence process without getting all your IP ducks in a row. Missing agreements means wasted time and expense. So be diligent and make sure everyone involved in building your company has an IP assignment agreement in place from day one.
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Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.