Making an IP Plan Early is Crucial for a Startup

I came across a recent techcrunch article discussing the importance of getting an early start on intellectual property in any startup business. This is absolutely crucial.

TechCrunch's advice is to have developers sign over their rights to the startup itself- while this is ideal for the owners of the business, asking developers to sign over all of the code the business is using is not always practical or possible. I've worked with developers in the past who released their code in a public domain or open source license before reusing that code in a startup.

Because it's been made public and has existing perpetual open source licenses in the wild, it's not clear whether or not it's always legal to recapture that and start asserting more limits on use without an arms-length negotiation. If you are building a startup with a future public offering in mind, it's absolutely crucial that you understand the government and licensing compliance required under Sarbanes-Oxley.

There are software tools that are built specifically for this purpose, and attorneys who specialize in this type of regulatory compliance, but the best approach for a startup owner is to take early steps to knowing what you own, how much of it you own, and where you can find it. For example:

  • Software Code
  • Assets (Graphical, musical, sound, voice, text, other multimedia)
  • Written material, publications
  • Data compilation, databases, mined data
  • Inventions & industrial designs
  • Trade names, product names, product designs, entity names
  • Know-how & workflows for generating a finished product
  • Other valuable secret information

Separately, something that is increasingly problematic for creative industries is knowing how the business can enforce their rights when threatened; startups and independent creatives are increasingly the victims of piracy and counterfeiting, and unlike a large and established company, reduced profits can mean that the startup goes insolvent, leading to VCs exercising takeover options, investors jumping ship, or the business just plain dying. This is where having good legal advice from a competent attorney is a good early investment.

Software Startups

Most software startups are going to be most concerned with three things: The copyrights on code, the secret internal code and data collections that employees are party to, and the inherent value of retaining the same talent.

The copyright on code is crucial. It is the only real way that a software company can distribute software at a per-person cost rather than accidentally negotiating for its sale to the public at large. Any other business has costs involved in reproduction- nobody has yet found a bulletproof means to prevent software from being copied, so copyright enforcement is the only effective tool to address this.

What is becoming increasingly important is Trade Secret data. Mining and gathering data and selling derived reports is increasingly the "money-making" portion of a software company's business model. This is what people talk about when they speak of "big data". Making sure your company knows how to keep that data is crucial to generating value and growth.

Finally, many startups underestimate not only the importance of talent but the importance of retaining that talent. The story often involves talented computer science students who delve deeply into a problem and carry with them an intricate knowledge of the product and the underlying technology. Additionally, the startup project may have a low "bus factor": the number of developers that would have to be "hit by a bus" to derail the entire project.

This makes them attractive "poaches" for two reasons: (1) their knowledge makes them valuable to people in the industry, and (2) rather than buying out the startup at full price, a hostile competitor could simply offer your talent a better deal, wait for your product to start on a downward spiral, then offer to buy you out at a fraction of the cost.

How do I make a Plan?

The details involved in making a plan are going to be especially dependent on the type of startup you're involved in. Without getting an attorney involved and coming up with a comprehensive plan that fits the business's needs, the best advice that can be given is to be clear about three things: Whenever anything protectible is created, (1) Do we own it? (2) Do we license it? (3) Can we prove it? These are difficult questions that require competent advice from a licensed attorney, and can vary from business to business. However, any effective plan will answer these questions and will establish policies for making sure that you can answer those three questions with respect to any intellectual property asset created for the business.

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