Start-up companies should ensure that they exclusively own intellectual property (“IP”) they purchase or develop. While a company generally owns IP that an employee develops, IP that an independent contractor creates (such as a website developer, a freelance photographer or graphic artist, or a friend trying to help) may be jointly owned by the independent contractor and the company, or even entirely owned by the independent contractor, unless the contractor has assigned all of its rights in the IP over to the company. It is best to secure IP ownership from the time it is created or acquired to avoid adverse consequences down the road.

For example, if a company hires someone to develop a logo or website, the developer will own any copyrights to the logo or website unless those rights are expressly transferred to the company in writing. In addition, moral rights (such as the right of integrity of work and the right to attribution) also attach to the copyrighted works. These moral rights may prevent companies from modifying the logo or website after the fact. Accordingly, companies should secure IP assignments from any independent contractors they use through carefully drafted agreements that address these issues.

Companies should also require current employees to formally assign any patents, inventions or other IP to the company. We recommend using employee invention assignment agreements in which employees clearly assign to the company any IP the employees develop in the scope of his/her employment. In addition, when filing a patent application, all inventors should sign an additional assignment that assigns any interests they have to the patent/application to the company.

Failure to secure proper IP ownership can have significant adverse consequences. Investors and potential acquirers will diligence whether or not the target company has secured exclusively ownership of its IP. If the company has not, it can negatively impact the financing or sales transaction. While the problems can be fixed through obtaining written assignments from the employees or contractors, it is not always easy to do so. For example, it may be difficult to find a former employee to properly secure IP ownership once the employee has moved on. IP owners also may refuse to sign an assignment agreement after the fact, or may try to leverage additional money from the company in exchange for an assignment.

Once ownership in IP is secured, additional protections are recommended. These measures include keeping potential inventions confidential (as public disclosure could bar patentability of the underlying invention), signing non-disclosure agreements with manufacturers and other partners, carefully reading and understanding IP provisions in development agreements, service agreements, inbound licenses and other agreements, and carefully drafting any outbound licensing agreements related to the IP.