Our "Protect Your Startup" series (presented by ) is a how-to guide for young startup founders in search of legal advice for their business. Each month we'll focus on different threats and the preventative measures that should be taken.
For the first installment in our “Protect your Startup” series it is only fitting that we discuss the core foundation of your business: your intellectual property (IP).
The term gets thrown around a lot these days, but the startup frenzy of the past decade has made IP one of the most important — and most lucrative — fields of law. In fact, one of the most famous IP disputes in history was the focal point for every young entrepreneur’s favorite movie — The Social Network.
Whether it is Zuckerberg v. The Winklevoss twins or Snapchat CEO Evan Spiegel v. co-founder Bobby Murphy, intellectual property can easily become an issue when a startup finds success. So how can you protect yours before it is too late? We spoke with Elizabeth Harding, a partner at Holland & Hart LLP, about the best tips young founders can take while building their company:
Know before you build
“A startup I knew spent a lot of time and effort putting together its company name, logos and branding,” said Harding who had practiced in IP, licensing and privacy since 2000. “What they hadn’t done was a trademark search and, unfortunately when they launched, they found that someone else had a registered trademark that was the same as their company name. All that time, effort and money went down the drain because the people on the other side were big and they just didn’t have a leg to stand on. They had to scrap everything and start again.
Additionally, investors are going to want to see clear ownership rights of IP. Having a messy trademark situation or a messy copyright situation is not going to be attractive to investors.”
Lesson Learned: Despite the tendency to want to move fast early on, you need to take the time to make sure your idea and branding are unique. Once you’re in the clear, solidify your trademark situation before raising any funds.
Have the awkward conversation
“I hate to be the harbinger of doom, particularly when folks are just starting out and they’re really excited — but I always say that the time to deal with what goes wrong is when things are going right. I had a client who started a company with his best buddy. They had pooled their own personal finances and ideas into it. What they hadn’t done was come up with any sort of agreement between themselves as to what would happen if they wanted to go their separate ways. It got really messy. They ended up having different opinions about where they wanted the company to go and they had a lot of shared IP. At the end of the day, neither of them could use it without the other’s consent. One of the guys dug his toes in and said no. All of their work was for nothing.”
Lessons Learned: Try to get down on paper what you would do if you and your co-founders have different opinions on the direction of the company or if you wanted to go separate ways. Fleshing it out in advance makes it easier to look to a document rather than trying to figure it out when things have gone down hill.
Keep an eye on contractual labor
“If you’ve got contractors writing code or writing material for you, make sure you get an assignment of that work because generally the fall back position is that the contractor will own it,” warned Harding.
Lesson Learned: The contracted labor workforce is growing at a rapid pace with no signs of slowing down. Bringing in a contracted developer, writer or designer often times fits the needs of a young startup but be sure you legally own any material they create.
Know what you can do with your data
“As data becomes more and more important, it’s super important to have a good privacy policy in place so you’re able to use that data for what you need to for your company while also being transparent with your customers. I’ve seen companies run foul with this — they weren’t being transparent with what they were doing with data and they ended up on the end of FTC investigations or data breaches. Or they don’t have a privacy policy and there is nothing in place that says they can transfer ownership of the data they’ve collected if they are acquired.”
Lessons Learned: Your customers’ data can become a vital part of your product as your business grows. Making sure you can legally utilize that data — while being transparent with your customers — can help you avoid both PR and legal backlash.
Have a question that wasn't answered? You can ask H&H here.
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