Sunday, February 5, 2012

Make sure it is yours!

One of the most important issues for start-ups is ownership of intellectual property. People sometimes get confused and think that the term intellectual property only includes patents and 'things' that can be registered, but it actually also includes source code, ideas, know how, and a lot of other things that cannot be registered.

 Why is that important? Many people come up with the concept for their new company, while working for another company. They then leave their old company, assemble a team and start developing new technology and raise money.

 What's the problem with that? Investors and potential buyers of your company will want to make sure that your new company owns all the IP and no one, including a former employer, can claim ownership. Well, the problem is that most employment agreements and proprietary invention assignment agreements (PIAA) would likely say that anything that you develop during your employment is owned by your employer. There are usually some exceptions, which are mandatory under some jurisdictions, that IP developed by the employee during his spare time, without using the company's property or proprietary information, and which does not compete with the employer, will not be owned by the employer.

So, assuming that you really developed your idea during the weekend and did not use any of your employer’s IP, are you all set if you have the carve- out language? Well, not always. Most people that start new companies don't really start a company in a new field, and in many cases they continue in the same field as their old company. It makes sense.

Therefore, even if they have that language, if the idea covers the same field of expertise as that of the previous employer, the employer may claim that the exception does not apply and that the employer owns the new idea. What's the solution? There are a few ways to resolve this issue.

The easy legal solution, but not practical in some cases, is to obtain a waiver from the old employer. This is applicable if you leave on good terms and while you will work in the same field, your employer is not really concerned that you are competing with him. Another solution, that is some times more difficult to prove, is to establish that the idea that was conceived during employment, was not mature enough and does not qualify as an invention. Obviously, this becomes more difficult to prove if by the time the employee resigns, he already has a developed product or a registered patent. Sometimes employees are successfully able to negotiate in advance carve-outs to their employment agreements which clear that issue in advance; but it will be very difficult to have an employer agree to a carve-out for IP that is in the same field.

If you cannot solve the problems and it is borderline, some investors, but not all, will agree to share some of the risk if you agree to specific IP indemnification, in which you agree to reimburse them, in the event that the this issue comes up. The vast majority will not touch your company if they think that it is a real issue.

The best advice is just to be patient! Don't start working full steam on a new idea before you disengage. Don't register patents and don't take any formal actions!