You’re an entrepreneur with a big idea and you’re poised to disrupt your target industry. Intellectual property is key to your success. To get your company moving, you may bring in others such as co-founders, employees, consultants, advisors, developers and creative talent. Founders, employees, developers, suppliers, and other contractors should all be bound by a written agreement stating that all intellectual property created in connection with the services performed for the startup is assigned to the startup. Absent a written agreement, the individual or entity providing the services will generally have ownership rights in such intellectual property, which will cause problems for the startup when it is looking to raise capital or be acquired. You have to set yourself up for the future by making sure that all of the intellectual property developed along the journey belongs to the company.

“Understanding what steps to take to protect your idea is more art than science.” 

What is Intellectual Property?

When you and your co-founders begin to iterate on an idea and develop a business plan or begin to build a product or a platform, you are creating intellectual property (IP). IP comes in many forms but make sure that whatever IP is being developed for your new enterprise belongs to the entity and not the individuals behind the development of the IP. That includes your products, recipes, marketing materials, logo, branding, packaging, website, business plan, theme songs, inventions, and more. You need to decide what constitutes intellectual property for your company. Obviously it includes anything co-founders create, relating to the company, during work hours. But what about ideas generated outside the office, such as when someone is on vacation, or a voice recording someone adds to their phone with their “idea”. A broad definition related to the business of the company regardless of time or place can be used, but must be balanced with not discouraging employees to be creative in their own right and for their own interests.

Both a company’s founders and its investors have a stake in ensuring that the company protects its intellectual property and avoids infringing the intellectual property rights of third parties. Here are some of the common protective measures undertaken by start-ups:

• Assignment of IP to the Company. As a startup or any business, work done for the company should remain the company’s property. Any intellectual property developed for your business goes to the entity itself, not to any particular person. For example, say one of your co-founders comes up with a great new name or technology solution. Unfortunately, too many founders work, iterate and develop an idea or a technology but separate before the IP that has been developed has been assigned from them into the entity, meaning your new enterprise may not have rights to various things that it will need to evolve its business or otherwise raise capital. If your founders’ agreement states that any intellectual property devised for the business is owned by the business and not any co-founder or employee who came up with it, you would be covered.
• Co-Founders. Co-founders should also sign an IP Assignment Agreement or as an alternative provisions could be added to a Founder’s Agreement.

• Confidentiality and Assignment Agreement for Employees. Every employee should be required to sign such an agreement. It accomplishes several purposes. First, it obligates the employee to keep confidential the proprietary information of the business, both during employment and after employment. Second, it ensures any inventions, ideas, products, or services developed by the employee during the term of employment and related to the business belong to the company and not the employee.
• Third Parties. Third parties such as vendors, consultants, and advisors should also be asked to sign an IP Assignment Agreement or have similar provisions integrated into their agreements. While you are getting to know these parties, but before you have signed a contract with any of them, you should ask them to sign non-disclosure agreements (NDAs) that states that each party agrees not to use or disclose the other’s confidential information (including their IP). Use your judgment as to which parties and when to ask given the nature of your relationship and if and when you are disclosing something proprietary.
• Patents. Patents are the best protection you can get for a new product. A patent gives its inventor the right to prevent others from making, using, or selling the patented subjected matter described in words in the patent’s claims. The key issues in determining whether you can get a patent are: (1) Only the concrete embodiment of an idea, formula, and so on is patentable, (2) the invention must be new or novel, (3) the invention must not have been patented or described in a printed publication previously, and (4) the invention must have some useful purpose. You obtain a patent from the U.S. Patent and Trademark Office, and this process can take several years and be complicated. You typically need a patent lawyer to draw up the patent application for you.
• Copyrights. Copyrights cover original works of authorship, such as art, advertising copy, books, articles, music, movies, software, etc. A copyright gives the owner the exclusive right to make copies of the work and to prepare derivative works (such as sequels or revisions) based on the work.
• Trademarks. A trademark right protects the symbolic value of a word, name, symbol, or device that the trademark owner used to identify or distinguish its good from those of others. Some well-known trademarks include the Coca-Cola trademark, the American Express trademark, and the IBM trademark. You obtain rights to a trademark by actually using the mark in commerce. You don’t need to register the mark to get rights to it, but federal registration does offer some advantages. You register a mark with the U.S. Patent and Trademark Office.
• Confidentiality Agreements. These are also referred to as Non-Disclosure Agreements or NDAs. The purpose of the agreement is to allow the holder of confidential information (such as a product or business idea) to share it with a third party. But then the third party is obligated to keep the information confidential and not use it whatsoever, unless allowed by the holder of the information. There are usually standard exceptions to the confidentially obligations (such as if the information is already in the public domain).

Your intellectual property is part of the special sauce that makes your business unique. Take some of these steps to make sure that special sauce is only used as you see fit.