The third milestone for a startup is product development. At this stage, the startup should think strategically about the following issues: (1) identification of inventions within products and/or services offered by the startup, and (2) protection of any developed source code. As the startup begins to develop the products and/or services it will provide, third-party developers outside of the startup may be exposed to the startup’s IP. For example, the startup may seek a third-party developer to code all or a portion of an application in accordance with the startup’s specifications. Or, the startup may seek a third-party developer to create an application that incorporates or links to portions of the startup’s code base. Accordingly, steps should be taken to protect the startup’s IP as third parties are given access to the startup’s IP.
First, the startup should strategically identify inventions within products and/or services offered by the startup. After these inventions are identified, the startup should decide whether to seek patent protection for the invention or to maintain the invention as a trade secret. If the startup decides to seek patent protection, the invention will need to be disclosed in such a way as to enable a person of ordinary skill to make and use the invention. In exchange for this disclosure, if a patent is ultimately granted, the startup will have the right to exclude others from making, using, and/or selling the invention covered by the patent for a term of years. On the other hand, if the startup decides to maintain the invention as a trade secret, the startup may enjoy an unlimited monopoly on the invention as long as secrecy is maintained. However, there are risks involved with protecting the invention as a trade secret: (1) the trade secret may be misappropriated, or (2) a third party may independently develop the invention that is the subject of the trade secret.
Second, the startup should take steps to address various copyright issues that may arise during the development of its product. For example, the startup should outline procedures for using open source code such as tracking what open source code/packages are used in the product as well as the corresponding open source license. Care should be taken to ensure that distribution of the product complies with the open source licenses. The startup should also consider whether it is appropriate to seek formal copyright registration of its source code (see http://www.copyright.gov/circs/circ61.pdf).
Third, in the event that the startup retains the services of a third-party developer, the startup should execute a written software development agreement that includes at least the following clauses:
(1) Confidentiality clause – This clause obligates the third-party developer to maintain the confidentiality of information that the startup discloses to the third-party developer, which may include the startup’s invention and certain specifications thereof. A confidentiality clause is especially important if the startup decides to maintain the invention as a trade secret, if a patent application has not yet been filed, or if a patent application has been filed with a non-publication request.
(2) Ownership of IP clause – This clause should clearly indicate that the invention disclosed by the startup to the third-party developer is owned by the startup. The clause should also obligate the third-party developer to assign to the startup any modifications and/or improvements that the third-party developer makes to the startup’s invention. Finally, this clause should address the scenario in which the third-party developer uses her own custom libraries as part of the software deliverable to the startup. In particular, this clause should cover a license grant from the third-party developer to the startup with respect to the custom libraries that the third-party developer used in the software deliverable.
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.