Intellectual Property Liabilities: 4 Critical Mistakes to Avoid

Key Intellectual Property Liabilities to Manage

Intellectual property liabilities pose significant risks to your business, with potential impacts on asset value and growth.

In business, there are multiple potential mistakes and errors and they come up in all different legal areas – from basic formation issues to labor and employment to intellectual property. Mistakes and missteps involving intellectual property can be particularly problematic because IP is a company asset; it constitutes a part of (often a significant part of ) a company’s valuation.

The Issues

1. ) Failure To Transfer the IP From The Founder Into the Company. It is an essential item for any company – if the company is being formed around a piece of IP, the company should make sure that whoever owns the IP contribute it to the company. The Conflict between the founders develops and there is a divergence of opinion on the value brought to the table by the non-developer founders; the developers decide to split with the IP and form a new company.
   Solution: As soon as the project morphs from talking to something real, hire a lawyer and get the material terms of the deal down to ensure the IP is properly assigned to the company.
2. ) Entanglements With a Founder’s Employer. Many entrepreneurs working on a start-up still keep a job. If a founder uses their employer’s facilities, computers, or other technology during company time to develop a new invention, this could raise issues over IP ownership. Additionally, it’s very common for employment agreements to include a clause vesting IP ownership with the employer where IP is created using company equipment or facilities.
   Solution: Depending on the State, an employee is the owner of any inventions developed entirely on his own time without using the employer’s equipment, supplies, facilities or trade secret information except where (i) the invention relates to the employer’s business or research or development of the employer; or (ii) results from work performed by the employee for the employer. Founders that are still employed (or just your ordinary moonlighter) should not use their employer’s equipment or facilities to work on their start-up or side project.
3. ) Letting IP Ownership Leave. It’s surprising how many companies compromise IP ownership through poor written agreements. Without an adequate written provision assigning IP ownership from an independent contractor, the company only owns a copy of the technology delivered and not the underlying IP rights.
   Solution: When working with independent contractor developers, always make sure that engagements are in writing and that the writing includes “work for hire” and assignment provisions. As for employees, companies should always have new employees sign a proprietary rights agreement as part of their new hire paperwork.
4. ) TMI. Oversharing information The detailed public disclosure of a new company IP may impact patentability. Under U.S. Patent law, a company has twelve months from such a disclosure to file its U.S. patent application; however, the right to file a foreign application is lost.
   Oversharing of information can also impact company trade secrets. A trade secret is information that is not generally known by a company’s competitors and derives economic value from it being a secret.