I know that you have heard it a million times, but I have to say it once more: Write it down! Entity agreements (of which a portion may include intellectual property issues) for the startup should be written down. By now, you’ve read about the Crunchpad lawsuit, where its looks like the Crunchpad is no more and one of the founders is seeking to create a similar product (the JooJoo) in a new startup. The lawsuit did not mention a signed agreement and it is unclear what each party’s rights are in the involved intellectual property. Some background information can be found in the below links:
Unfortunately, startups come and go all the time. Fortunately, new potentially successful startups can rise from the pieces of a failed startup. Some of the desirable leftover assets include the people and the intellectual property. However, there will be questions on both. What happens with the people and the IP on failure? Are the departing people immediately free to work in the same space as the failed startup? Who has what rights in the IP?
These issues should be addressed at formation of the startup, not when a failure or dispute occurs. Having the deal documented makes it easier to start making products and minimizes litigation potential and scope in the case of a failed business. Some issues relevant to this dispute often addressed in an intellectual property agreement include:
- What intellectual property is being contributed to the startup? This should be a detailed description, not just a general intellectual property transfer. It appears that the Crunchpad included hardware, operating system, and application components. Did all of those exist and were they transferred to the startup?
- What happens to rights on IP derived from the contributed IP? There were some reports that a Crunchpad prototype was the contribution to the startup? Assuming those reports are accurate, who has rights in the IP derived from the prototype. It is possible that the hardware, operating, system, and/or application components were further developed during the operation of the startup. Who has rights in those improvements?
- What happens to the IP upon the failure of the new formed business or departure of its contributor? Does the IP remain with the startup? Do all rights revert to the contributor? Does the startup retain any rights?
Answering those and other questions at formation can minimize later problems with the intellectual property of a failed business. Failure to address the questions could lead to questions of ownership, unwilling investors, and product (read: income) delays.