The Three Biggest Mistakes Startups Make Related To Intellectual Property - (StartupReport)

As an intellectual property (“IP”) lawyer, I’ve been doing IP counseling, litigation and clean up for over a decade. I’ve seen some tragic mistakes that have cost startups and investors millions. Many of the mistakes could have been avoided with some basic understanding of intellectual property law and some key practices.

Here are the three biggest blunders:

1. Failure to Obtain Proper Intellectual Property Assignments
One of the biggest mistakes a startup can make is failing to obtain proper IP assignments that transfer IP rights to the startup from its founders, employees, and independent contractors who create the startup’s core intellectual property. This blunder can gut the value of the company and derail potential investments.

The company will not own what it thinks it owns if it doesn’t take precautions.
Contracts that transfer ownership of all IP to the company are critical.

2. Failure to Keep Intellectual Property Ownership Rights Clean

Entrepreneurs who work for another company when they create their startup put the new intellectual property rights at risk. If they don’t take precautions, their old employer may claim rights to the startup’s crown jewels.

Moreover, if startup employees are not educated about intellectual property law, they may use or disclose trade secrets from their former employers creating a dirty IP ownership mess and put the company at risk for expensive litigation and third party claims of ownership to the startup’s IP.

Further, employees may create an IP ownership mess if they incorporate third party IP into the company’s new works without proper licenses. This can wreck havoc on the value of the products and put the company at risk of third party infringement claims.

Beware of open source code that contains restrictive licensing terms that does not permit sale of a derivative work or requires a restrictive pass through license to customers.

Education about intellectual property law can help a startup keep its IP clean and protect its value.

3. Failure To Take Reasonable Precautions To Protect The Startup’s Own Trade Secrets

A startup that fails to educate its employees about trade secret law, identify its trade secrets, and take reasonable precautions to protect them may be horrified when it cannot obtain legal protection when its trade secrets are disclosed or used without authorization.

The law requires that a company take reasonable precautions to protect company trade secrets in order to obtain legal protection and recourse. Reasonable precautions include restriction to access to confidential information that confers a competitive advantage, education of employees about trade secret law, and non-disclosure contracts with employees and other third parties who are exposed to company trade secrets.

Education about intellectual property law and proper practices can help a startup protect its important intellectual property and avoid liability and litigation.

Jill Hubbard Bowman is an intellectual property lawyer and author of the blog, iplawforstartups.com, that teaches lessons about trade secret, copyright, trademark and patent law. Jill also publishes a career website, lookilulu.com, that profiles inspiring career women to help young women see what they can do and live lives they love. Jill can be contacted at hubbardbowman [at] me.com.

For more information on these topics see:
• Ten Great Reasons to Learn about IP Law
• The Biggest Startup Blunder: Failing to Secure Ownership of Your Startup’s IP
• Will My Current Employer Claim Rights to My Startup’s IP?
• Trade Secret Law 101: Why Entrepreneurs Should Care About Trade Secret Law

The information provided in these articles is intended only for general education and is not intended as legal advice and does not create an attorney-client relationship.