A successful startup provides a solution to a market need. Typically, the solution involves a new or improved device or technique. As a startup defines and develops its solution, intellectual property (IP) becomes a core asset of the company. Indeed, after management members themselves, IP is often a startup’s most valuable asset.
This is the first article of a Startup Intellectual Property Series to help startups understand how to identify and protect their IP. The first two entries in this Series introduce the following five threshold questions that every startup should consider:
In the early stages of a startup, individuals typically collaborate informally to develop their ideas and a business plan. A company may not be formed yet. There may be no formal agreements among the individuals. Additionally, some of the collaborators may be employed by other companies while waiting for the startup to launch. As part of employment with such companies, certain collaborators may be obligated to assign his or her contributions intended for the startup to their current employer. Without any formal agreements or even a formal entity to own IP, any IP generated or derived from an informal collaboration may be owned by individuals personally or worse yet, depending on the circumstances, by another company. Every potential investor or acquirer will perform due diligence to make sure that all of the company’s IP is owned by the company. From the outset, every startup needs to consider these ownership issues which can cause barriers to funding or acquisition or otherwise limit valuation in the future.
In the early stages of a startup, founders often socialize their business plan and some details of their ideas to receive feedback and further refine them. A startup will also share information to attract or recruit other team members, investors, advisors or early adopters of the solution. While it is necessary to have these discussions in order to achieve business objectives, disclosure of highly confidential plans and ideas is often awkward and uncomfortable. Will the other party keep your confidential information confidential, or will they go ahead and use the idea for themselves? Also, an unwary entrepreneur may not realize that publicly discussing a solution may adversely impact available IP rights. To mitigate this risk, every startup needs to have a plan on how to approach such discussions and what steps to take prior to disclosing confidential or IP related information.
We will discuss each of these topics in detail in future articles. In the meantime, check back soon for our next article with an overview of the remaining three threshold questions!