intellectual property and your start-up company

Intellectual Property and Your Start-Up Company

By: Wayne Kennard Josh Fox

Series 1

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Three-Part IP Series (1) Intellectual Property and Your Start-Up Company (2) Practical on Patents and Trade Secrets How to’s, Dos, and Don’ts

(3) Practical on Copyrights and Trademarks How to’s, Dos, and Don’ts

2 © 2014 Wilmer Cutler Pickering Hale and Dorr LLP

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What IP is of Concern? Every start-up company has IP that must be properly handled: Patentable invention (commonly thought of) Trademarks (commonly thought of) Copyrights Trade secrets


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When Should We Think About the IP? Pre- or Post-Company Formation? The founders should determine, as much as possible, the

following before the enterprise is formed: – The IP by type being contributed by each of the founders: the

most important are patentable inventions, copyright material, and trade secrets

– The IP to be developed by the enterprise and when: first product or some future product

– When to make founder contributed IP company IP


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Founder Equity Contributions and IP Founder Contributions for Equity Money Ideas Potentially Registrable IP

– Patentable subject matter – Copyright material

Trade secrets for the enterprise

What about trademarks? Value based on “use”


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Outside Investment and IP Premise: Company vision and ideas (management), and IP (technology) drive outside investment. Outside investment types for early-stage companies:

Friends and Family Angels Venture Capitalists

Control of IP: Each of the above, if sophisticated, will not expect to have direct control of, or any claim to, company IP. However, none of the above will invest unless the company owns its IP. Some overly-aggressive investors may attempt to include a “claw-back” on IP, a means to obtain ownership of IP, under certain specified circumstances, such as liquidation or dissolution of the company.


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Equity, Board Membership, and IP The Certificate of Incorporation, By-laws, and amount of stock that is distributed, along with any other contracts agreed to by stockholders, will determine board membership The board controls the assets of the company, including use

and disposition of IP Unintentional loss of board control by founders to other

stockholders would result in loss of control of company IP

Board member equity: Options to purchase common stock for independent directors as compensation for their services (not investor-directors or founders)


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Advisory Board Compensation and IP Advisory Board compensation Money

– Hardest for a start-up – Impact on IP?

Equity – Easiest for a start-up – Type of Equity

Options to purchase common stock – Impact on IP?


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Agreements Employee agreements and IP (See Sample) IP created and developed on company time using company

resources – “Work for Hire” and “Assigned” to the Company

Confidentiality provisions

Third Party/Vendor agreements and IP The company “owns” IP it paid to have developed

– “Work for Hire” and “Assigned” to the Company Company can consider licensing back certain aspects of what

was developed with limitations


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Agreements Joint Venture/Collaborative agreements and IP Protect contributed IP Know technology state in the area of interest of the parties If joint ownership of developed IP, start-up must consider

relative size of its partner – Need protections in agreement


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Agreements Nondisclosure/Confidentiality agreements and IP (See Samples) Start-ups will use and see this type of agreement the most Start-ups may find a potential investor reluctant to sign 2-4 pages Key limitation is that whatever the start-up discloses under the

NDA/CA cannot be used by the recipient for its benefit without the prior written consent of the start-up


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The Next Phase of the Company and IP IP Enforcement Expensive and avoid at all costs (if possible)

Out-Licensing IP Revenue generation No warranties regarding IP

Merger/Acquisition Know the IP the company owns Do not have equity distributed or agree to contractual

restrictions, if possible, that would allow an outside investor to stop transaction


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The Next Phase of the Company and IP Company dissolution IP has value Distribution according to determination at company formation


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Questions? Wayne Kennard 617-526-6183 [email protected] Josh Fox 781-966-2007 [email protected]


Wilmer Cutler Pickering Hale and Dorr LLP is a Delaware limited liability partnership. WilmerHale principal law offices: 60 State Street, Boston, Massachusetts 02109, +1 617 526 6000; 1875 Pennsylvania Avenue, NW, Washington, DC 20006, +1 202 663 6000. Our United Kingdom offices are operated under a separate Delaware limited liability partnership of solicitors and registered foreign lawyers authorized and regulated by the Solicitors Regulation Authority (SRA No. 287488). Our professional rules can be found at www.sra.org.uk/solicitors/code-of-conduct.page. A list of partners and their professional qualifications is available for inspection at our UK offices. In Beijing, we are registered to operate as a Foreign Law Firm Representative Office. This material is for general informational purposes only and does not represent our advice as to any particular set of facts; nor does it represent any undertaking to keep recipients advised of all legal developments. Prior results do not guarantee a similar outcome. © 2014 Wilmer Cutler Pickering Hale and Dorr LLP

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