©2014 Goodwin Procter LLP

Common IP Mistakes Made by Founders

Steve CharkoudianPartner, Goodwin Procter LLP

June 3, 2014

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Innovation Goodwin Procter’s Founders Workbench

Founders Workbench: a free, online resource to help entrepreneurs navigate many of the legal and organizational challenges

Site includes self-service tools for generating basic company legal documents

Resources include significant content, links and library of resources, Capital Calculator, Deal Dictionary, Document Driver, and Founders Workbench blog

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1. Forgetting that you and your employees and contractors signed IP agreements with prior employers.

Look at employee and contractor agreements that you and your employees/contractors have signed!

Typically these agreements assign all of your rights in any IP created, made, conceived or reduced to practice by you that

› result from tasks assigned to you by the prior employer, or

› result from the use of the prior employer’s premises or property, or

› relate to the business of the prior employer.

Watch for traps.

May also include a non-compete.

Investors will care; the development timeline will be scrutinized during any investment round.

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2. Assuming that all you need to do to use the company’s brand is buy the domain name.

Protecting your brand does not mean only buying the domain name.

Can you use the name of the company and its products/services?

› You don’t want to invest time and money in creating brand awareness, just to find out later that someone else has exclusive rights to the brand.

Basic “do it yourself” trademark searching:

› United States Patent and Trademark Office: uspto.gov

› Web searching: Google

More formal “lawyer” searching involves engaging a third party search firm to do a search of many different databases: around $1500.

Rule of thumb: the more arbitrary or fanciful the trademark, the more likely it will be protected.

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3. Overthinking third party patents.

It is a good idea to put some thought into whether there are any third party patent holders who can block you from doing business in the manner in which you are planning – BUT don’t overthink it.

› Basic “do it yourself” patent searching:

▪ If there are known competitors, check the uspto.gov website to see if they have a relevant patent portfolio.

▪ Other key word searching at uspto.gov

› If a plain reading of the patent leads you to conclude that it is a direct hit – that is, that it reads on what you are planning on doing, then you should have a patent lawyer look into it.

Do not let this distract you from the primary goal - developing your product or service!

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4. Assuming that you don’t have an open source software problem if you don’t modify the open source software.

The challenge is to understand open source licensing terms so the software can be used without jeopardizing the confidentiality of your own source code, or the integrity of future revenue streams. 

Understand the common types of open source licenses:

› Non-viral open source licenses (e.g., BSD, Apache and MIT licenses).

› Copyleft licenses (e.g., GPL, LGPL and AGPL and MPL).

Establish and open source policy and enforce it.

Know when to go to your lawyer and what questions to ask.

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5. Founding the company without transferring existing IP to the company.

In exchange for founders shares, contribute all IP of the founder that relates to the business of the company under a Contribution and Assignment Agreement.

This agreement is entered into in addition to a Confidentiality and IP Assignment Agreement, which would cover the assignment of IP on a go-forward basis.

Great resource for documents such as this, http://www.foundersworkbench.com/document-driver/ (yes, this is a shameless plug).

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6. Assuming that IP developed by an employee is owned by the company.

Very important to have written agreements with employees that assign all of the employee’s rights in any IP created, made, conceived or reduced to practice by the employee that relates to your business, result from tasks assigned by you or result from the use of your premises or property.

The only category of IP that may be assigned automatically in this context without a written agreement is copyrights (under the work for hire doctrine). However, do not rely on this narrow exception.

Maintain a policy of having each employee sign such an agreement as part of the new hire package. Investors will ask.

Consider whether to include a non-compete (and enforceability issues).

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7. Assuming that a simple fee for work agreement with an independent contractor is adequate to assign IP rights.

It is even more important to have written agreements with independent contractors than employees, as the work-for-hire doctrine in this context is extremely narrow.

Understand what IP is being assigned to you and what is being licensed.

Ask whether the independent contractor may reuse any the delivered work product.

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8. Missing the traps in “mutual” NDAs.

Basic rule here: Don’t disclose nonpublic information about your company to anyone without a nondisclosure agreement.

Watch for unusual or aggressive provisions in “standard mutual NDAs”

› “Residuals” provisions

› NDAs without “non-use” provisions

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Questions?