Legal Principles for Tech Startup & IP Development

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Intellectual property development for technology startup companies comes hand-in-hand with the opportunity to fall into a number of legal and strategic pitfalls. Some are obvious, while others can present counter-intuitive opportunities for early-stage startup mistakes. There’s no “free pass” for the consequences of these mistakes, and in some instances the consequences can be fatal.

Early stage decisions and actions form the building blocks of your startup and can dramatically impact the future value of intellectual property rights. If you’re starting a tech company, it’s important to seek advice from an intellectual property attorney to structure your intellectual property protection, IP licensing, and to protect you in employment law related intellectual property issues.

Confidentiality Agreements & NDAs

A technology startup company that is too eager for business partnerships or financing often discloses proprietary information and trade secrets prematurely. An effective non-disclosure agreement (NDA) drafted by an IP attorney precisely for the needs of your business startup is critical to protecting intellectual property rights. Once you have a well-drafted NDA, it’s important to use it wisely. Even with signed NDA, you should provide third parties only with information that you need them to know.

Some tech entrepreneurs also have the opposite problem – they ask for anyone and everyone to sign an NDA before talking about their startup technology. This is a classic “newbie” mistake. You should be able to talk about your product or service without having to disclose the “secret sauce” that makes your company valuable. If you cannot, then your insistence on signing an NDA will show experienced professionals that you lack maturity in the startup scene.

Tech Founders, Employees & Non-Compete Agreements

Before you bring on founders and employees, you must fully investigate their work history. Specifically, it’s important to review their current and previous employment agreements. Many entrepreneurs in Texas have the mistaken belief that non-compete agreements aren’t enforceable in Texas because Texas is a “right to work state.” This mistake can cost you dearly. Non-compete agreements are enforceable in Texas if they are properly drafted, and the founders and employees who develop valuable intellectual property are typically required to sign a noncompete employment contract.

Failure to fully investigate these contracts makes your startup vulnerable to litigation for tortious interference with contract and claims of intellectual property infringement. Even if an employee non-compete contract is not legally enforceable in court, it can still cost you a lot of time and money in legal fees to defend against a bad-faith claim.

In a different scenario where your tech startup doesn’t get into a conflict or lawsuit, failure to properly investigate your workers’ prior and concurrent employment contracts can result in “spoiled” intellectual property. Spoiled intellectual property has the potential for dispute and uncertain risks relating to ownership of IP. If discovered during the due diligence process of business buyout, merger, or financing processes, spoiled IP can kill your deal.

Employee & Independent Contractor IP Assignment

Many startups also misunderstand important differences between employees and independent contractors. In addition to the tax issues, this is an important area for tech startups to understand because transferring and assigning intellectual property rights often require different approaches for employees and independent contractors. The terms of intellectual property assignment for employees and independent contracts will most likely be different, for both practical and legal reasons.

It’s critical to engage a Texas intellectual property attorney to ensure that the terms of your agreements are fair and enforceable against both employees and independent contractors. Beyond the issue of being enforceable, there is also the challenge of getting cooperation you may need in the future from employees and independent contractors who no longer work for you. For example, when you are selling a technology startup, or simply selling intellectual property assets, the due diligence process may reveal that additional documentation or assignments are necessary to make sure that the IP is securely transferred. If you do not have the right terms in your contract, it may be difficult to fulfill these requirements, and your business buyout deal may fall through.

Striking the right balance between the business needs of your company and the legal risks taken is what drives successful technology startup companies. Our Austin law firm advises tech startup companies and business investors in a range of IP law, IT law, and other tech startup matters. To speak with a Texas IP lawyer, call our law firm today.

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