There are many intellectual property (IP) considerations when structuring your startup. Many startups overlook the importance of their tracking IP though and are confronted with questions of IP ownership at critical moments such as:

  • the business’ registration;
  • a capital raise; or
  • a former employee setting up a competing business.

It is crucial to get IP ownership right to retain value in the business and ensure its growth. This article focuses on how you can protect your startup’s copyright, trade marks and patents.

Why Should the Business Entity Own the IP?

Often, a large proportion of a startup’s value is based on intangible IP assets, generally created by individual employees or stakeholders. The business entity itself needs to own these assets, as they generate value and growth. Investors are keenly aware of this and may require you to provide proof of IP ownership before investing. In fact, businesses are occasionally alerted to issues around IP ownership during investors’ due diligence process. Such issues may cause investors to either forfeit the investment opportunity or postpone it until you resolve the matter.

Further, documenting IP ownership provides certainty and avoids internal disputes between existing stakeholders.

For example, one of two co-founders develops software for a software as a service (SaaS) business. The software may belong to the developer under copyright law if they are not an employee and there is no agreement concerning copyright ownership. If a dispute breaks out, the developer may claim ownership of the software and either leave with a valuable business asset or use it as a bargaining tool.

Documenting IP ownership may prevent these types of situations and allow for team members to focus on the business’ operations.

Copyright

Copyright is the protection of the expression of an idea and the creator automatically owns the IP. Developers own their software, writers their written work and visual artists their designs. There are two ways for a business to own IP subject to copyright:

  1. a deed of assignment; or
  2. an employment or contractor agreement.

Some founders work for months on their project before setting up a formal business structure. When the business is established, the creating founder generally retains IP ownership unless they take steps to note its transfer formally. If the founders set up a company or a trust, it is best practice to assign the IP in writing. To document this properly, you need a deed of assignment, which assigns the IP from the creator to the business entity. The IP does not need to be assigned where a founder operates as a sole trader because the business and the individual are the same entity.

Once you register the business, your startup owns any IP an employee creates, subject to the terms of their employment agreement. You should prepare a written employment agreement with clear IP terms.

For a contractor, IP ownership is detailed in the contractor agreement. You should draft the contractor agreement or, if the contractor provides the contractor agreement, review the agreement’s IP terms.

Trade Marks

Your startup will own any trade marks it has registered. If you established the business after registering the mark, you must prepare a deed of assignment and submit it to IP Australia. Following this, IP Australia will transfer the trade mark to the business.

Patents

Your startup also owns the patents it has registered. If an individual owns a patent, they can transfer ownership to the business by preparing and submitting a deed of assignment to IP Australia. Alternatively, the patent owner may choose to retain ownership and license it to the business under a licence agreement.

Key Takeaways

IP is sometimes known as the ‘crown jewel’ of startups because it generates value and growth for businesses. Startups should be careful to document IP assignment and creation before and throughout its lifetime. A simple deed of assignment or written employment or contractor agreement can go a long way for your business’ success. To understand how to best manage your startup’s IP, contact LegalVision’s IP lawyers on 1300 544 755 or fill out the form on this page.

Nathalie King
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