IP Flashcards
I’m a scientist / researcher. I want to give my technology to the world, but I do not want to run a company. Should I still patent it?
First of all, what you want might be a moot point, as your employer (company or university) may in fact own the invention or technology and have ultimate control over its destiny. As for pursuing a patent or not, it depends. Obtaining a patent gives the patent-holder exclusive authority to make, use, offer for sale, or sell the invention for a limited period of time (14 or 20 years). In exchange for time-limited exclusive use, patents require the grant-holder to publicly file & publish their technology after the expiration of the patent. This is meant to incentivize disclosure (accelerating technology development) while enabling the inventor to capture value from their invention.
While patents can be costly to acquire in terms of time and money, and may not seem very altruistic, patenting the invention may in fact be the best way to share the technology. You do not have to run a company. Instead, you could license the technology to a large organization that has the resources to commercialize it and distribute it. And, without patent protection, it may be possible that in some cases public disclosure actually deters an existing player from commercializing your technology because there is the risk that a competitor could compete cheaply without having to invest in research and development. We could imagine an alternate set of facts, however, where an inventor has zero interest in commercial benefit, and the technology is such an obvious leap forward that it will be quickly adopted by all stakeholders, but both those two factors (zero interest in commercial benefit and obvious commercial value) do not often appear together!
How do we ensure that IP created by overseas talent is owned by the company?
The biggest question for acquirers is whether IP assignments, background licenses and confidentiality obligations of individual personnel effectively make their way back to the Company. Usually the problems are based on (a) missing or insufficient language in the employer of record (“EOR”) agreements and/or (b) insufficient ability of the company hiring the overseas talent to access and review all the relevant documents.
These problems are exacerbated by the fact that there are usually three separate agreements that are relevant to the effective pass-through to the company of rights with respect to each individual working via an EOR, and a single problem in any of those agreements can prevent the company from obtaining those rights. The reason for three agreements is the EOR structure:
Company client signs an agreement with the EOR itself (the master service agreement (“MSA”));
the EOR then contracts with a local entity in the country where the individual worker is located (which entity may or may not be related to the EOR); and
the local entity then contracts with the individual worker.
Given there are at least 3 levels of agreements that need to be done correctly for the IP assignments, confidentiality provisions, background licenses and moral right waivers to effectively make their way to the company (per the above, those three levels are (i) the MSA, (ii) each agreement between the EOR and each of its in-country partners (“ICPs”), and (iii) each agreement between each ICP and each individual developer), the EORs need to understand that only a direct IP agreement between each individual developer and the company will suffice.
We typically recommend addressing the issue by:
Revising (or if already executed, amending) the MSA between the company and EOR to allow the company, to enter into IP agreements with individual contributors directly and clarifying that these agreements supersede any conflicting terms between the Company and EOR and EOR and the individual contributors;
preparing respective forms for the Company to execute with employee and consultant contributors; and
having current employees and consultants engaged through EOR use these forms consistently going forward.
As a general matter we recommend consulting with experienced employment and intellectual property attorneys when structuring these relationships.
What is the SU-18 agreement, and how does it affect me or my startup?
An SU-18 agreement is Stanford’s Patent and Copyright Agreement. All Stanford employees including staff, student employees, faculty, graduate students, and postdoctoral fellows are required to sign an SU-18 to assign rights to any intellectual property they develop at Stanford (within the scope of their role or using Stanford resources) to the University. This form is usually signed during the Stanford onboarding process. Sometimes obligations under this agreement may conflict with your ability to pursue a startup company. We recommend seeking the advice of an experienced third party intellectual property attorney, and, if necessary, coming to an agreement with Stanford’s Office of Technology Licensing.
I’m taking a startup class at my university and we are working on a group project. We have not yet incorporated. Are we creating intellectual property? Who owns it? What issues may arise?
Note: This answer assumes that none of the collaborators have any conflicting employment or intellectual property assignment obligations, e.g., with an outside employer or with the university itself in the case of a university employee.
Are we creating intellectual property?
Maybe. A first step is understanding the fundamentals of intellectual property law, answered in other FAQs. It may be the case that the collaborators are creating intellectual property that is protected or protectable by copyright, trade secret, trademark, or patent.
Who owns it?
The default rule is that the creator(s) or inventor(s) own the intellectual property, unless there is an incorporated entity and an effective intellectual property assignment agreement in place.
What issues may arise?
Note: This answer assumes that none of the collaborators have any conflicting employment or intellectual property assignment obligations, e.g., with an outside employer or with the university itself in the case of a university employee.
I work at a (Stanford) university lab and I have a side project. Does the university own this project, or am I free to use it to start a company?
Depending on the nature of the employment agreements you signed with the university, the subject matter of your university work, and the subject matter of the side project, the university may or may not have a claim to intellectual property ownership of your side project. We recommend consulting with experienced commercial counsel.
Moonlighting: What are the intellectual property issues presented? What are best practices?
Note: the following information is applicable to a contributor based in California. Other states or international jurisdictions may have different rules.
Under California Labor Code § 2870, employers cannot claim ownership over the invention of an employee if the following requirements are met (and any assignment that intends to cover such inventions is unenforceable):
The employee made the invention entirely on their own time.
The employee made the invention without using the employer’s equipment, facilities, supplies, or trade secrets.
The invention did not result from any work performed by the employee for the employer.
The invention did not relate at the time of creation to the employer’s business or the employer’s actual or anticipated research.
Compliance with criteria 1 - 3 is possible through appropriate attention and care. The last criterion depends on the contributor’s current employer and the startup’s product or service. What does it mean to “relate” to the employer’s “actual or anticipated research”? Most practitioners read this broadly, and would advise that the appearance of conflict is likely conflict. The analysis can become particularly difficult where the employer is a large technology company such as Amazon or Google, which have broad scopes of research.
Many large technology companies have established internal processes for employees to notify management of moonlighting projects and receive explicit permission. Often it is advisable to pursue these channels, but consider the possible competitive disadvantages of disclosing a new and exciting (and potentially very valuable) project to a large and well-resourced organization.
Engaging with a moonlighter is a judgment call or expected value calculation that weighs the value of the moonlighter’s anticipated work product against the size & likelihood of risk of legal conflict or problems in future due diligence. Moonlighting is not an uncommon arrangement in the case of an early-stage company that does not yet have the momentum or resources to lure talented employees away from their current full-time role, but sometimes the better option is to wait a few months until there is the right combination of momentum and resources for the startup to hire the contributor full time.
We recommend consulting with experienced commercial counsel prior to engaging contributors who are moonlighting.
Why won’t investors sign nondisclosure agreements (NDAs)?
Common reasons why investors typically will not sign nondisclosure agreements (NDAs):
Investors are in the business of investing in founders with great ideas, not stealing those ideas.
The reputation downside of breaching confidentiality is a stronger incentive for an investor to maintain confidentiality than the NDA itself.
Investors may meet several companies building variations of the same idea, so signing NDAs can create conflicting legal obligations.
Investors often review thousands of pitch decks and have hundreds of screener calls with different founders before offering a term sheet; signing NDAs for even a small portion of this deal flow would require significant legal, financial, and administrative resources.
Investors must disclose and report information concerning startups they are funding to potential limited partners or general partners.
Asking for an investor to sign an NDA can signal a lack of trust in the investor or a founder’s ignorance of standard market practice; neither is desirable.
When should I use nondisclosure agreements (NDAs)?
Some founders have a tendency to overuse nondisclosure agreements (NDAs); often the best practice is simply to keep information confidential. NDAs add significant friction to early-stage product and fundraising conversations that by their very nature should be more casual and dynamic. NDAs are also difficult to enforce, and few startups have the resources to enforce them even if breached.
Some founders have a tendency to overuse nondisclosure agreements (NDAs); often the best practice is simply to keep information confidential. NDAs add significant friction to early-stage product and fundraising conversations that by their very nature should be more casual and dynamic. NDAs are also difficult to enforce, and few startups have the resources to enforce them even if breached.
In general, consider using an NDA when disclosing valuable & specific proprietary information (e.g., trade secrets) to third parties (e.g., joint venture partners) as part of a critical relationship.
Is this information proprietary?
High-level brainstorming, fundraising pitches, or design partnership usually does not qualify.
Does this customer / partner / investor / etc. really need access to proprietary information in order to purchase / partner / invest?
Most do not. They simply need to understand your value proposition and be assured that your technology, product, or service works as advertised. A key exception might be in the case of a commercial partnership or joint venture, where both parties must understand the scope and value of their respective intellectual property in order establish a fruitful relationship.
Is this relationship critical, and potentially very valuable?
If not, query why disclosing the proprietary information is necessary or worthwhile.
What is a one-way NDA?
A one-way or unilateral nondisclosure agreement (NDA) is an agreement between the parties where one party agrees to not disclose the other party’s confidential information (because only one party is revealing confidential information).
What is a mutual NDA?
A mutual nondisclosure agreement (NDA) is an agreement between the parties that neither party will reveal the other’s confidential information. A mutual NDA creates a confidential relationship between the parties. The agreement also typically includes a clause that details any potential consequences of disclosing information covered by the agreement.
How do advisors assign their intellectual property to the company?
Advisors generally assign their intellectual property to a company via an advisor agreement. Without appropriate assignment in place, advisors are presumed to own the intellectual property rights of the work they develop, so an agreement with an effective intellectual property assignment clause is essential. If the advisor is not providing technical services (e.g., product, design, engineering), then intellectual property assignment is less critical. We recommend seeking the advice of experienced IP/commercial counsel when drafting & reviewing advisor agreements.
How do consultants assign their intellectual property to the company?
Consultants generally assign their intellectual property to a company via a consulting agreement or master services agreement. Without appropriate assignment in place, consultants are presumed to own the intellectual property rights of the work they develop, so an agreement with an effective intellectual property assignment clause is essential. We recommend seeking the advice of experienced commercial counsel when drafting & reviewing consulting agreements.
What is a PIIA (or CIIAA) and why must employees sign one?
A PIIA (or CIIAA) is a Proprietary Information and Inventions Agreement (or Confidential Information and Inventions Assignment Agreement), a contract in which an employee assigns all intellectual property to their employer and agrees to confidentiality restrictions for all proprietary information. PIIAs typically include nondisclosure, non-solicitation, and non-competition clauses (if the employee is working in a state where non-competes are enforceable). PIIAs ensure that companies own their intellectual property, products, and technology. Investors and acquirers will perform due diligence to ensure that all employees have signed PIIAs.
What steps can the company take prior to formal patent application?
Given the cost of patents in general, most startups do not consider pursuing patents until they have raised significant funding (>$500,000, usually $2,000,000+). However, there are intermediate steps that might be strategically important or valuable to the company, particularly in the case of certain companies that operate in patent-heavy sectors (e.g., hardware, biotech).
Conduct an initial freedom to operate (FTO) analysis
A freedom to operate (FTO) analysis is often performed very early on in the product development cycle to determine whether a product, technology, or invention may infringe on an existing patent. Benefits include understanding the landscape, learning how to invent around existing patents, decreasing the risk of litigation from patent infringement claims. Downsides include the cost of analysis, as retaining an expert law firm can cost between $3,000 and $30,000, depending on scope, complexity, and how much of the work is done by the law firm as opposed to the startup.
File a provisional patent application
A provisional patent application is a lightweight application filed in the USPTO under 35 U.S.C. §111(b) that protects the new invention without requiring a formal patent claim, oath, or statement of prior art. The provisional patent application lasts for twelve months, at which time a company must file a formal patent application. In the meantime a company may use the “patent pending” designation.
Should I patent my technology?
It depends. Patents require public disclosure of technology, are expensive, and take a long time to be approved. However, patents can help protect against intellectual property copying or theft, can be used as a sword or shield against competitors working on similar technology, and have independent value as assets that can be licensed or sold. Here are a few follow-up questions that may help clarify:
Are you building a software company?
It is very rare for early-stage software companies to pursue patents.
Have you raised less than $500,000?
If so, you are likely too early to spend the time & money required to patent your technology.
Have you developed technology that will soon be publicly disclosed?
If for example, you are presenting commercially valuable new technology at a conference or publishing it in an academic journal, it may be wise to file a patent or provisional patent in order to ensure the public disclosure does not prohibit you from protecting the technology via patent in the future.
Is this technology protected under other categories of intellectual property?
Most early-stage technology companies protect intellectual property through a combination of copyright and trade secrets. Consider whether relying on those protections is easier, cheaper, and more strategic.
