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A nice overview of the range of intellectual property protections available to a startup. As someone who deals with early-stage startups all the time, the numb
by grellas 17y ago
A nice overview of the range of intellectual property protections available to a startup.
As someone who deals with early-stage startups all the time, the number one mistake I see concerns "do-it-yourself" founders who fail to take proper steps to transfer their IP into their startup at inception. In other words, they will form their entity themselves, use some online kit to do as simple a setup as possible, and ignore the IP issues altogether, which means that whatever IP they had developed prior to formation, or that they continue to develop even after formation, will continue to belong to them individually or to other third parties such as contractors, and will not belong to the company.
This is usually a harmless error in that it can later be corrected once it is discovered, but only if all the founders (and other third parties such as contractors) are cooperative about it. If they are not, this situation can lead to serious problems, especially if the problems are first unearthed during due diligence in the course of a funding or acquisition.
The article mentions this problem in summing up the most frequent mistakes in this area and otherwise has intelligent insights and observations throughout.
- icefox 17y agoAnd what is the correct way to transfer IP from the founders to the startup?
- gfodor 17y agoThe founder can contractually assign the IP to the company for a purchase price of usually $1.00.
- grellas 17y agoThere are two pieces to this: first, for all IP-related work done prior to formation, the founders will typically assign their IP to the company for a nominal valuation, usually in connection with paying a token dollar amount for their stock; second, if the founders continue to do IP-related work following formation and issuance of their initial stock to them, they need either to be employees or contractors in relation to their company and, in either case, need to have in place some mechanism that ensures capture of their continuing IP-related work product for the company (this is usually a work-for-hire agreement if they are contractors or an employee invention assignment agreement if they are employees). Those are the basics. Beyond this, you need to ensure that proper "consideration" is given to the founders to make the IP transfers legally binding. For the pre-formation IP transferred in connection with the stock grants, this is not an issue. For post-formation work, this takes the form of continued vesting of stock (if vesting is in place), often coupled with some form of very modest deferred compensation that is needed to minimize tax risks to the founders. Some of the technical rules are explained in more detail here: http://grellas.com/faq_business_startup_015a.html http://grellas.com/faq_business_startup_015a.html.