In this post, Attorney David Benoit continues with his guest blogging on Intellectual Property. Here is the second installment in the Top 5 IP Issues for Connecticut Start-Up Companies.
It is important for technology attorneys to counsel start-up companies to preserve IP that is being developed on an on-going basis. Utilizing contract best practices to ensure that that valuable intellectual assets are not contracted away will help maximize the overall value of the start-up and enable it to maximize commercialization opportunities.
No. 2 - Don’t Be So Quick to Open the Kimono: Protecting and Retaining IP Going Forward.
Once a tech start-up has taken sufficient measures to preserve its IP vis-à-vis its development team, it is equally important to employ contract best practices to enable the company to retain full control of future IP and to protect the company’s opportunities for future exploitation and commercialization. IP in this context especially includes, for example, source code for new application customizations, modules, functionality or interfaces.
This is especially true for software companies and web-based service providers that offer application development or software customization services to its customers. Most improvements to existing products and services are developed by these technology companies during the course of customer engagements. Industry knowledge, technical know-how and new business processes are learned during their interactions with their customers. It is precisely these interactions that spawn evolutionary upgrades and/or new products and generate substantial value in the company’s future growth.
Preserving the ability to use these valuable assets and integrate them fully into a company’s products and services, without restriction, should therefore be a top priority for the company and its lawyer during any contracting and negotiating process with a customer. All too often software start-ups, in the context of professional service or application development engagements, are overly eager to please their clients and avoid contract negotiation or confrontation. In some instances, start-ups make a decision to contract for new business without a lawyer to negotiate or draft agreements. As a result, they may inadvertently cede ownership rights to “work product,” know-how and/or “residuals” to their clients. Doing so may severely restrict their ability to offer similar services to future customers for fear of infringing on their former client’s IP rights or breaching former client contracts.
For this reason, start-ups should consider consulting an attorney experienced in technology and business before signing a contract. Having a technology lawyer carefully craft client agreements (and knowing how to effectively negotiate ownership rights and license provisions) will allow a tech start-up to fully incorporate valuable improvements into future product and services releases.
Next up, Out of Thin Air: Increasing Company Valuation Through Portfolio Creation.