Attorney Matt Bower shares tips for protecting your intellectual property, as well as your business.

Entrepreneurs are, by their very nature, energetic risk-takers often with a singular focus on launching their product or service. That kind of dedication and focus is terrific for getting to market and developing value quickly. Unfortunately, that “get-it-done-and-work-out-the-problems-later” approach can have tragic consequences where the business’s intellectual property is neglected in the process; particularly for today’s startup businesses where IP (such as software, patents, and trademarks) plays a vital part. If the IP is not secure, the entire business value is in jeopardy. If the business value is in jeopardy, it may be very difficult finding investors or carrying out an exit strategy.

How does the startup or early-stage company protect its IP? Here are a few tips:

1.       Have an entity in place and agreement among the founders. Too many entrepreneurs start out as sole proprietorships or unincorporated partnerships, which provide no protection from liability and fail to adequately capture all of the intellectual property contributions of the founders. Having an entity and a written shareholder agreement or operating agreement in place provides many benefits to the owners, one of which can be (and should be) a clear understanding on ownership of past and future contributions.

2.       Identify possible patent opportunities early and often. In the patent world, if you snooze…you lose. Work with patent counsel to identify patentable technologies and get your applications timely filed.

3.       Have written agreements with your independent contractors. Too often entrepreneurs hire independent contractors to help with product or software development without written agreements in place. This is the single biggest mistake of startup software or Internet companies. Under copyright law, the default rule is that the person who creates it (the author) is also the copyright owner. Without an agreement in place that vests the copyright in the company, the company merely owns a nonexclusive license to use the copyrighted work – this is not the story you want to tell potential investors or buyers.  

4.       Protect your trade secrets. Just about every business has some trade secrets – i.e., information which is confidential and gives the company a competitive advantage – be it source code, patent pending technology, business plans, or other confidential information. Use nondisclosure agreements with employees, contractors, and key vendors with whom you share this information. A failure to attend to this aspect of intellectual property protection could cost an enterprise dearly.

5.       Make sure you’re not violating the intellectual property of others. Claims of infringement for violating intellectual property can be costly, not only the penalties involved but also the legal costs in defending yourself from such claims. For the early-stage company, such claims can be crippling. Avoiding these claims can also be tricky and not always obvious. Does your invention violate someone else’s patent? Do your trademarks violate someone else’s trademarks? Does your website allow users to violate others’ copyrights (for which you will also be liable for providing the means)? Protect yourself with patent and trademark searches, comprehensive user agreements, and internal policies and procedures.

Points to Ponder:

• Do you have an agreement among the founders on intellectual property ownership?
• Are you working with patent counsel?
• Are you using agreements with your independent contractors to capture IP?
• Are you using NDA agreements with your employees, contractors, and vendors?
• Do you have a website that allows users to post content? If so, do your website terms and conditions protect you from claims of infringement on your service, and do you have procedures in place to remove infringing material?

Matt Bower is a business attorney representing companies in the small to upper-middle markets, with a specialty in representing startup and early-stage technology companies and their respective owners.  He provides his clients with a wide variety of business legal services from “cradle to liquidity,” including entity planning and formation; private equity financing; and intellectual property protection and licensing. In addition to corporate representation, Matt focuses his practice in the areas of copyright, trademark, ecommerce, publishing, software, Internet, mobile, entertainment law, and other areas of technology and intellectual property.

If you need a referral to an intellectual property attorney, or business attorney, contact Your Legal Resource for a free consultation.