
Someone Stole My Startup Idea – Part 3: The Best Defense is a Good IP Strategy - prakash
http://steveblank.com/2009/12/10/someone-stole-my-startup-idea-–-part-3-the-best-defense-is-a-good-strategy/
======
grellas
A nice overview of the range of intellectual property protections available to
a startup.

As someone who deals with early-stage startups all the time, the number one
mistake I see concerns "do-it-yourself" founders who fail to take proper steps
to transfer their IP into their startup at inception. In other words, they
will form their entity themselves, use some online kit to do as simple a setup
as possible, and ignore the IP issues altogether, which means that whatever IP
they had developed prior to formation, or that they continue to develop even
after formation, will continue to belong to them individually or to other
third parties such as contractors, and will not belong to the company.

This is usually a harmless error in that it can later be corrected once it is
discovered, but only if all the founders (and other third parties such as
contractors) are cooperative about it. If they are not, this situation can
lead to serious problems, especially if the problems are first unearthed
during due diligence in the course of a funding or acquisition.

The article mentions this problem in summing up the most frequent mistakes in
this area and otherwise has intelligent insights and observations throughout.

~~~
icefox
And what is the correct way to transfer IP from the founders to the startup?

~~~
grellas
There are two pieces to this: first, for all IP-related work done prior to
formation, the founders will typically assign their IP to the company for a
nominal valuation, usually in connection with paying a token dollar amount for
their stock; second, if the founders continue to do IP-related work following
formation and issuance of their initial stock to them, they need either to be
employees or contractors in relation to their company and, in either case,
need to have in place some mechanism that ensures capture of their continuing
IP-related work product for the company (this is usually a work-for-hire
agreement if they are contractors or an employee invention assignment
agreement if they are employees).

Those are the basics. Beyond this, you need to ensure that proper
"consideration" is given to the founders to make the IP transfers legally
binding. For the pre-formation IP transferred in connection with the stock
grants, this is not an issue. For post-formation work, this takes the form of
continued vesting of stock (if vesting is in place), often coupled with some
form of very modest deferred compensation that is needed to minimize tax risks
to the founders.

Some of the technical rules are explained in more detail here:
<http://grellas.com/faq_business_startup_015a.html>.

------
petewarden
It's worth reading the link about the patent he won $150m on:
<http://www.law.com/jsp/cc/PubArticleCC.jsp?id=1202425204868>

They sued because Sony and Microsoft's controllers vibrated. I'm not sure this
patent is the poster child for why the IP system is awesome. I love Steve's
work, but I'd like to see some acknowledgement that there might be a wider
cost to society from chasing patents like these.

~~~
ynniv
My interpretation is that IP is something that you have to deal with, even if
you don't think it matters. The ways that he suggests you deal with it are to
(a) explicitly assign IP early, (b) document external communications of novel
ideas and file provisional patents before one year is up, (c) be aware of IP
when negotiating with contractors and customers. Those sound reasonable even
for startups, and will hopefully keep you out of trouble (or provide
unexpected value) later on. IP is unlikely to pay out, but so is your startup.

------
tptacek
Funny, this article reminded me to check, and one of my Arbor patents just got
published.

From 2002.

That's about all you need to know about patents for startups. From the time
you file to 6-9 years afterwards, the expense and effort of a filing buys you
_nothing_. Meanwhile, the world continues to turn on its axis.

Is your company even going to be around for 9 years?

Of course, having the patent published doesn't really change much either.
That's because you can safely add several _more_ years to reach the date at
which you'll actually see the inside of a courtroom if you decide to exploit
the patent. It takes _forever_. With your counsel's meter running the whole
time.

