Omoruyi Edoigiawerie, Esq

One of the most important assets that start-ups own is Intellectual property. This is especially important when a start-up needs to distinguish itself, establish distinctiveness and build an additional asset portfolio.

To ensure that it owns and protects its intellectual property rights, it is important for a start-up to fully understand its intellectual property portfolio, prioritize its protection, and carefully and intentionally determine its ownership; especially where there is more than a single founder.

Understanding what owning intellectual property entails as a start-up is highly essential to ensure that start-ups are equipped with the necessary apparatuses needed to defend themselves against both third parties and competitors from unlawfully exploiting their intellectual property.

At the top of the list of reasons to protect their intellectual property is the fact that a solid Intellectual Property portfolio is one veritable way of raising capital, because investors (and their counsel) will, as part of due diligence, be sure to ascertain a start-up’s right to intellectual property and oftentimes value their Intellectual Property Portfolio to gauge the start-ups’ value or growth trajectory.

As smooth as Intellectual property rights and ownership may seem, some problems may arise capable of derailing the start-up’s brand protection and exploitation plan. One such problem may arise if one of the founders of a start-up leaves before the entity is fully formed and takes his rights to the certain key intellectual property along with him. There are also instances where the Intellectual property rights created do not get transferred to the start-up at all and therefore cannot form part of its assets.

One way to protect a start-up against the above challenges is to adopt a standard form agreement that can be signed by anyone involved in the early stage of the project or the ideation stage, these persons may be founders, employees, consultants, or contractors, in essence, anyone contributing an integral link to the project and involved in the brand conception and creation.

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Generally, two primary agreements help address these challenges:  Intellectual property Assignment Agreement; Confidentiality and Proprietary Rights Agreement

1.           Intellectual Property (IP) Assignment Agreement

An IP assignment agreement ensures that all IP rights created by the founders or owners before the formation of the business will be assigned to the new business entity. This assignment agreement is an essential document to be signed by the founders of any business. This is usually done as part of the formation process and often in full or partial payment for the founders’ shares.

As is often the case, many start-ups from the onset are formed with the sole aim to attract investors or venture capital firms to fund or even outrightly buy them over.  Where this is the case, it is important to point out that prospective investors will invest only in companies that own their IP rights. Often, the valuation of a start-up’s IP portfolio is what investors and venture capital firms determine when considering buying in. A potential investor wants to see that the Company owns the IP that the founders developed before the Company was incorporated. The easiest way to achieve this is through a founder IP assignment agreement.

2.           Confidentiality and Proprietary Rights Agreement

A Confidentiality and Proprietary Rights Agreement is essential for employees. Just like the IP Assignment Agreement, the Confidential and Proprietary Rights Agreement helps in ensuring that all the ideas and inventions employees, contractors, service providers, or founders create while in the employ of a start-up remain the property of the start-up.

Protecting intellectual property after the assignment

Intellectual Property is not static and evolves just as the company evolves, therefore, there is the need for start-ups to also put in place essential measures to ensure that they do not as we say in Nigerian local parlance “loose guard”. They must continue to tie their Intellectual Property rights to watertight agreements that entrench their protection and serve as a security against encroachment, exploitation, or outright theft from all other persons or entities.

Three primary contracts are veritable tools for helping start-ups who are adequately protecting their intellectual property:

a.           Technology Assignment Agreements (TAA),

b.           Confidentiality and Invention Assignment Agreements (CIAA of CIIAA), and

c.            Non-Disclosure Agreements (NDAs).

To determine what type of contract to implement, start-up founders need to first identify who holds ownership of the Intellectual Property and the time of creation. This not only helps them know what agreements are important but also helps them to achieve meaningful valuation.

If a person, whether a founder, employee or another party– created the Intellectual property pre-formation, then that person owns the Intellectual Property until it is assigned to the company. Likewise, if founders or employees created the Intellectual Property while working on behalf of a prior legal entity, then the old legal entity will own the Intellectual Property until it is transferred to the current legal entity.

•            A “Technology Assignment Agreement” or TAA is a contract that assigns intellectual property from an individual or old legal entity to the current start-up. The TAA transfers the title from the creator of the IP to the current legal entity. To be valid, a TAA must be executed by the owner of the IP. This could be any of the founders. However, it may be difficult to identify who owns the IP rights from the onset, in such instances, the best approach is to recommend that all founders and previous legal entities execute TAAs assigning property to the start-up.

•            It is also essential that for all future intellectual property created post-formation, start-ups should require all its founders, employees, and consultants to sign Confidential Information and Invention Assignment Agreements.

Objectives of CIIAAs:

There are generally two objectives of CIIAAs:

The first is to ensure that employees are bound by confidentiality agreements which require them to keep information learned throughout their employment confidential;

And ensuring that any work product, regardless of whether it qualifies as perfected or potential Intellectual Property, is owned by the start-up rather than the employee.

•            Once the start-up has finalised putting in place the necessary mechanisms to ensure that all Intellectual Property is owned by the start-up and any future Intellectual property created by the employees will be owned by the start-up, the next step is for the start-up to develop and implement Non-Disclosure Agreements (NDAs) which will prohibit employees, consultants, partners or other third parties from unauthorised disclosure, use or assignment of any intellectual property rights belonging to the start-up in any shape or form or under any guise.

If a start-up is considering entering a potential business opportunity with either a vendor or a customer, an NDA will also protect all the confidential information disclosed between the two entities.

*CONCLUSION

We can all agree that Intellectual property falls among the most important considerations that any start-up will encounter. Protecting intellectual property is essential to obtaining venture capital funding or preventing unfair competition which is capable of affecting growth at the early stage when it is most important, but even more important is also ensuring that as the company grows its employees and partners do not pass their boundaries when it comes to the Company’s intellectual property portfolio.

Omoruyi Edoigiawerie is the Founder and Lead Partner at Edoigiawerie & Company LP, a full-service law firm offering bespoke legal services with a focus on start-ups, established businesses, and upscale private clients in Nigeria.  The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. His firm can be reached by email at hello@uyilaw.com