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There are many legal issues that startup founders need to deal with. Making sure a company’s intellectual property (IP) is protected is one of the highest priorities. If there is a product, then there is IP. But the crucial question is: who owns it?
just because a to start Working on a product doesn’t necessarily mean it owns the IP address – and even if it does, it’s IP protected. A founder may also overlook the full breadth and scope of IP, which often encompasses a combination of patents, trademarks, copyrights, and trade secrets.
Many startups fail, or at least struggle needlessly because they fail to properly recognize and protect their potential IP assets from the start. This can pose significant challenges when raising capital or bringing a product to market. In short, errors related to IP can be fatal to a startup.
Here are four of the most common intellectual property mistakes startups make, in no particular order, and some steps to help prevent them.
Related: The Basics of Protecting Your Intellectual Property Explained
1. Making wrong assumptions about IP ownership
Let’s revisit the question posed above in the context of the following scenario. Two friends, a developer and a product manager at two different companies, meet for a beer after work. The developer talks about some exciting software that he has written that could potentially solve a problem that the product manager has noticed in the B2B market.
They sketch a few ideas on the back of a napkin and decide to start a SaaS company to market the product. They form a legal entity and get to work with the product.
So, who owns the IP?
Without knowing more, it is impossible to say – and therein lies the problem. It’s a bad idea to assume that just because co-founders are starting a business, the company owns the IP that a founder worked on before starting (or even after) the business.
In general, the shorthand rule for IP ownership is that the creator of a thing, be it a co-founder or freelancer, owns the thing. Ownership rights may be assigned to the company proactively or retroactively through contract (such as through operating, employment, or independent contract agreements). Where startups run into trouble is making incorrect assumptions about IP permissions, forcing them to scramble and spend resources to correct oversights.
Related: Why Intellectual Property Is Critical For Startups
2. Taking a DIY Approach
There are ways founders can cut corners and avoid legal fees without creating existential threats to the underlying business, but a DIY approach to intellectual property is not one of them. The simple rule to follow is: don’t use a form you find online for agreements that could affect IP. As the old saying goes, “penny wise, pound foolish.”
IP is too important to leave things to chance. And when founders use online forms to negotiate agreements with employees and suppliers, they take a big chance that could lead to the company losing control (or never being secured in the first place) over critical IP.
3. Skip simple steps that can help with IP issues
It’s more common than you might think: a founder takes and starts working with a name for the company already in use. This mistake can easily be avoided, and in this case there are a few DIY steps a founder can and should take.
Before choosing a name, conduct a trademark search at the United States Patent and Trademark Offices Electronic Trademark Search System (TESS). The fact that a name does not appear on TESS does not guarantee that someone else does not own the trademark, but it is a good starting point.
Other simple searches can be done on Google, relevant secretary of state websites, and a domain registrar, such as GoDaddy.com.
4. Failing to Develop an Overarching IP Strategy
As we discussed, IP is one of the most valuable assets of a startup. Therefore, a startup should invest in developing a comprehensive strategy so that its IP can be protected and monetized as the business race to raise capital and bring its product to market.
In collaboration with experienced IP lawyers, a startup must formulate a strategy that at least:
- Identifies all IP and steps required to protect it.
- Evaluates whether the company needs to acquire third-party IP rights through licensing agreements.
- Makes appropriate agreements between founders and between the company and employees and contractors to ensure that the company has the IP rights it needs and that confidential information is protected.
Growing a startup is hard enough. Don’t make it harder on yourself as a founder by overlooking some of the critical steps needed to protect your company’s IP. Don’t try to do it yourself. Work with an expert who’s seen all the common IP errors startups make so you don’t have to.
Related: The Procedure: Protecting Your Intellectual Property as a Small Business