The first critical, and often overlooked, milestone for a startup is the founding of the company. At this stage, the startup should begin thinking strategically about the following issues: (1) the core idea upon which the startup is based, (2) the name of the startup, (3) the name of the product or service to be offered by the startup, and (4) the IP that the founders are contributing to the startup.
With the above IP issues in mind, the founders should take steps to determine which legal entity is going to "own" the IP. For example, is the IP going to be owned by the founders individually or by an operating company owned by the founders, e.g., New Company, Inc., or New Company, LCC? Once this decision is made, the founders should take steps to memorialize the ownership of the IP with the appropriate legal documents (e.g., company formation documents, assignment documents transferring IP ownership to the appropriate legal entity, etc.). At this stage, it is also advisable for the founders to create a founders’ agreement that outlines what happens to the IP in the event that the founders part ways and/or the company fails.
If the founders are contributing IP to the startup, the founders should take steps to (1) clearly delineate what IP they are contributing to the startup, and (2) ensure that the appropriate agreements (e.g., license or ownership agreements) are executed such that the startup has sufficient rights to use this IP.
Finally, with respect to the protection of IP, the founders should consider performing a trademark clearance search on their company name and/or product or service name to determine whether the name (for the company, product, or service) is available for use in commerce. The founders should also consider whether filing a patent application to cover their core idea (as opposed to maintaining the core idea as a trade secret) is warranted at this time.
This blog entry was co-authored by Kelly McKinney, Patent Attorney, and Aly Z. Dossa, Partner at Osha Liang LLP. This blog entry does not constitute legal advice and only represents the views of the authors.