An IP ownership dispute is not something to be taken lightly.
Any hint of a question mark over the ownership of your operating IP is something that should be taken very seriously, and investigated and resolved.
As past experience highlights, the lesson is overwhelmingly that festering ownership disputes only become more problematic over time.
An early screening question for any investor is "Do you own your IP?" Anything other than rock solid ownership will be an automatic pass. This applies not just to investors but any due diligence activity that takes in IP. This is simply because questions over ownership are relatively common, and also the consequences can be significant.
A bit of wisdom courtesy of Guy Kawasaki, from a short piece entitled How to Keep your Startup Simple. Though he is talking about startups, the same goes for any tech company uninterested in absorbing big dollar lawsuits:
“A startup should unequivocally own or unequivocally have licensed its intellectual property. This means that there are no lawsuits, or any risk of lawsuits, by former employers and no charges that the intellectual property infringes on someone’s patents. Also, the intellectual property and licenses should belong to the startup, not the founders. This is because you never want a situation where a disgruntled founder leaves the startup and takes the intellectual property with him — crippling the startup.”
A sunny, optimistic glass half-full attitude is a wonderful thing. Here, you need to be the opposite though. Naturally, and of course you think you own the IP you think you own.
A critical investigation into IP ownership is a cold-blooded risk assessment around who else may make a competing claim to that ownership. The claim need only be plausible for it to be potential headache — and the more at stake, the more likely tenuous claims become. Also, this is something that can easily spook investors or potential acquirers.
So what are the red flags that bear investigating?
A six-point checklist represents possible areas that can represent areas where IP ownership leakage can occur.
Senior employees or any technical staff that bring or generate important IP are in the spotlight here. The issue is that the former employer may claim ownership of the IP that you thought your company owned. New staff are often taken on precisely because of their proven skill or experience in the same field, and if critical work overlaps it can be problematic. Similar issues apply to former directors or other senior officers associated with other companies, as well as yourself of course.
Commercial agreements around technology projects can sometimes be surprisingly open-ended around who owns the resulting project IP. Even when such agreements are carefully scoped and detailed on IP, what happens with unanticipated or out-of-scope outcomes? This is when things can get hot.
Universities are really a special case of a 'former employer' — and deserve a special mention. Any former students and academics you employee will very likely have been subject to detailed IP policies surrounding their involvement with the university. While policies can vary widely in how liberal or restrictive they are, tertiary institutions do seem to be more than averagely tenacious in asserting any ownership rights when things become commercially interesting.
Freelancers, such as industrial designers, consulting engineers or software developers is the main issue here. They've been great, instrumental in fact. Usually they have zero interest in participating in your commercial project beyond their engagement. But depending on prevailing laws, and any agreement that may exist, they may retain ownership of their contribution. Now imagine they use their new skills and expertise to re-purpose their work for another company. Mmm.
Any formal discussions you have with a potential collaborator may often be governed by a mutual NDA. This means you keep each other's information confidential, which seems entirely reasonable. What if though, they come right out and share with you their new exciting development. You get back to base and find out your tech team has been working on something very similar. Uh oh.
Sometimes your technical team may collaborate unofficially and informally with others outside the company. Think mentors, industry contacts or former colleagues. When the outside contribution tips towards co-inventorship, that can mean co-ownership if that contribution remains unacknowledged.
The strong recommendation (far easier to give than take) is to resolve any potential IP ownership issue before it becomes a problem. Easier said than done, as it can take a lot of perseverance and effort to work meticulously through problems that do not (at the time) even look much like real problems at all. Remember, you're usually also dealing with people who are lukewarm at best about getting back to you about disclaiming their ownership of your IP.
An evergreen theme of IP ownership disputes though is that ownership is never forcefully contested when it's early days and the IP doesn't seem to be worth that much in the eyes of the third party.
When the IP becomes worth a lot? Well, the game changes. So, it is usually relatively easy to resolve matters early on, and far less easy later on. There's nothing like imminent success to flush out a claim. It may cost quite a bit to settle, and probably more again to litigate — though without the assurance of prevailing.
The main lesson is you need an absolutely rock solid and unchallengeable claim to ownership of any IP that is mission critical for your company. Chasing down copyright ownership in your marketing brochure is nor essential. Any core technology that cannot be replaced is worthy of close attention though. Do not leave any ambiguity at all. Even if you seem to be OK, get ahead of any issues and definitively resolve them before you hit real success.
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