The truth is, it’s always easier and cheaper to prevent than to cure an issue, especially a legal one. If you take the right steps, you can prevent legal hassles and save a lot of money. To help get started, I’m going to share with you a pattern of common mistakes that has revealed itself to me from working with numerous startups:
1) Failing to sign the right contracts with employees, vendors and others.
Startups are usually born out of a passion for something. So there’s an informal atmosphere about most things, which is generally fun and feels great, but it does tend to cause problems in the long run when business relationships aren’t made in writing. Legal agreements with respect to Intellectual Property, among the founders, employees and vendors are crucial to protect the intangible assets of an organization.
Some elements to make sure are present in your Intellectual Property Agreements are:
- Who owns the Intellectual Property?
- Have you signed a confidentiality agreement among yourselves or your vendors? Does it include non-compete clauses?
- Are you licensing Intellectual Property to a vendor to solely service your company, or is there a wider scope?
- Does your vendor indemnify and hold you harmless, in case your developed or manufactured product has infringing material?
- Who will bear the legal cost in case of an IP Infringement scenario?
- If somebody is infringing your Intellectual Property, is your partner (vendor, distributor, etc.) liable to take up the legal costs?
These are a few top ones, but keep in mind that there are many more such elements which are required to be maintained for a sound legal position with respect to Intellectual Property.
2) Launching before you look
This “premature launch” aspect has two important concepts: (a) protection of your own Intellectual Property, and (b) protecting yourself from infringing another’s Intellectual Property.
(a) Protecting Your Own Intellectual Property. Certain types of IP have a strict statutory mandate that do not allow patent and design protection after disclosure to others or the launch. Startup founders need to be create their IP strategy and take the required measures before doing a widespread launch.
(b) Protecting Yourself from IP Infringement Lawsuits. It’s essential that a startup performs a thorough analysis of third-party Intellectual Property Rights, to ensure they are not infringing on the Intellectual Property Right of others. It is not as simple as doing a Google search for a certain trademark or technology, and assuming that it is safe to go forward based on those results. In order to ensure that a company is safe from infringement, it is advisable to take the assistance of a trademark attorney to perform a trademark clearance search for the desired trademark, or of a patent attorney to perform a freedom to operate search.
3) Following the ‘DIY’ approach.
“Do It Yourself” is more and more prevalent with lots of services. But when it comes to legal it may come back to bite you in the future. I’ve seen it happen time and time again.
There are several aspects that a company’s founders may not identify as a threat or strength to the company. Involving an IP expert will help the organization understand its strengths and help in drawing out a suitable Intellectual Property & Legal strategy for successful growth.
4) Assuming it’s too early to involve legal counsel
In the most simple sense, having a good counsel and advocate leads to better business decisions which leads to larger profits, a solid foundation, and ultimately a higher company valuation. For example, the Intellectual property of a company is one of the essential parameters of your company’s valuation. The absence of Intellectual Property may result in lower valuation of your company’s worth, which is crucial with respect to investment and acquisition opportunities. Keep this in mind if your startup may look out for funding or strategic partners and companies to merge with to help it grow.
5) Not realizing how much a good lawyer could help with getting funding
Venture capitalists and other funding organizations will conduct a due diligence analysis and this will certainly include due diligence of Intellectual Property Rights of your company. If the registrations are not up to date, and the company does not have ownership of the rights, and rather the independent vendors or employees own the rights, this will look really bad for your company and you as the founder(s).
6) Using trade secrets or other materials from your previous company
Some startup founders may carry over aspects from another company they worked for. This may include trade secrets, customer lists, management strategies, computer software, etc. Using information you learned elsewhere or being vulnerable to people you work with stealing your confidential information is the kind of mistake that may prove fatal to the startup.
Luckily, most of these mistakes can be avoided by working with a good lawyer on your side who understands your business, vision and goals.