Ip 101 for Startups

Stephen Gillespie
Christopher Joslyn
February 2017
IP for Startups 101

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• Why IP is important.
• What IP is.
• What are the hot-button issues for startups?
Outline of Topics

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• The information provided is not legal advice and should not be construed
as such.
• Please see your attorney should you require legal advice.
Disclaimers

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• Founded in 1972 as one of the first law firms to focus solely on technology
companies.
• Many attorneys with advanced technical degrees.
• Many attorneys with practical business and technical experience.
• Emphasis on attorneys that understand the industries they serve.
About Fenwick & West LLP

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• Why IP is important?
Intellectual Property

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• Technology – software, hardware, architectures, processes, product roadmap
• Data
• Customer information
• Brand, logo, domain name
• Business processes, logistics
• People, know-how
• Relationships, reputation
Intellectual Property = VALUE

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• You create something that falls within a class protected by the law.
• For some classes, you get protection automatically. For other classes, to
get protection, you should/must go through a registration, application or
examination process.
• “Protection” is a negative right. The law does not give you the right to use
your creativity. It only gives you the right to stop others from using your
creativity.
The General IP Model

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• What is IP?
Intellectual Property

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Type of IP What is Protectable Examples
Contract, IP As defined in the contract technology
business information
Trade Secrets Secrets with economic value non-public technology
product roadmap
Patent Inventions new technology
Copyright Creative, authored works software
content
Trademark Branding marks and logos
slogans
Domain Names Presence startup.com
There are five (and a half) main types of IP protection.

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• There is no registration process.
• You have whatever protection is defined in the contract (e.g., NDA gives
you certain rights to protection of your confidential information).
 Protection against “disclosure”
 Protection against “use”
• The protection lasts for the time
period defined in the contract.
Contract (NDA) can protect confidential information.

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• Beware of certain clauses:
 Feedback. During the Term, each party shall provide the other party with Feedback
regarding the other party’s products and services. “Feedback” means any
requirements, expectations, suggestions, test results, error data, bug reports or other
information and materials provided by one party to the other party regarding such
other party’s products or services. The party providing such Feedback irrevocably
assigns to the other party all of the providing party’s right, title, and interest in and to
the Feedback, including all patent rights, copyright rights, trade secret rights, and other
intellectual property rights therein.

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• Beware of certain clauses:
 Residuals. Each party has the right to use for any purpose the Residuals resulting from
access to or work with the other party’s Confidential Information. The term
“Residuals” means information in non-tangible form that is retained in the memories of
persons who have had access to the other party’s Confidential Information, including
any generalized ideas, concepts, know-how or techniques contained therein. Nothing
in this section or otherwise will be deemed to grant to either party a license under any
of the other party’s patents or copyrights. Neither party shall have any obligation to
limit or restrict the assignment of such persons or to pay royalties for any work
resulting from the use of Residuals.

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• There is no registration process, but there must be economic value in
keeping the information secret.
• Trade secret gives you the right to prevent others from stealing your secret
or from using stolen secrets.
• Trade secret protection lasts for as long as
the secret remains a secret.
• Trade secret does not prevent
reverse engineering or
independent development.
Trade secret provides some protection for information and ideas.

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• Application and examination are required.
 USPTO will examine your application.
 Typical cost for application and exam is $10-30k.
 Typical time for application and exam is 1-4 years.
• Patent gives you the right to prevent others from making, using and selling
your invention, even if the invention was independently developed by the
infringer.
• Patent protection typically lasts for 15-20 years.
• Patent does NOT give you the right to use the invention yourself (because
you may be infringing someone else’s patent).
Patents provide robust protection for inventions.

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• Copyright registration is optional, but is required to sue for infringement.
 There is no examination.
 Typical cost for registration is $1-2k.
 Typical time for registration is a few months.
• Copyright gives you the right to prevent others from copying your work, but
copyright does not protect the underlying ideas.
• Copyright protection lasts practically forever.
• Copyright does not prevent
independent development.
Copyright protects works of authorship.

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• Trademark registration is optional, but has significant advantages:
 USPTO will examine your mark.
 Typical cost for application and exam is $1-5k.
 Typical time for application and exam is 2-3
years.
 You get broader protection if approved.
• Trademark gives you the right to prevent others from using confusingly
similar marks.
• Trademark protection lasts as long as you are using the mark.
• The more you use the mark,
the stronger your protection.
Trademark protects branding and marks.

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• Domain name registrations help customers and partners find you:
 [Company].com
 [Product].com
 [Market].com
• Registrations are easy to obtain (e.g., GoDaddy.com).
• Domain names last as long as you renew/pay for them.
Domain names are an extension of TM/branding

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• IP Ownership
 Founders and pre-formation IP
 Employees, contractors and consultants
 IP assigned or licensed to customers and others
 Government and university relationships
Hot-Button Issues for Startups:

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• IP Ownership
 Founders and pre-formation IP
• Founders developed IP prior to forming the company
• Founders were working for former employer at the same time
– Inventions that relate to the employer’s business, or actual or demonstrably anticipated research or development of
the employer.

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• IP Ownership
• Get signed, written assignments (“I hereby assign…”)
– Employer owns copyright by default (“work for hire”)
• Doctrine does not apply to contractors/consultants
– Inventor owns patents by default (not employer)
• Ownership regimes are often different outside the US
• Inventors may be entitled to compensation
– Rights of authorship / moral rights may not be transferable
• Beware of overreaching (too much of a good thing can be bad)
– Cal. Labor Code 2870
– Non-competes

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• IP Ownership
• Employees “moonlighting” or involved in other activities
– Avoid if possible
• Keep everything on company time, company premises, and company equipment
– Advisors, board members
– Open source projects and standards activities

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• IP Ownership
• University professors/graduate research
– University IPR Policy. This policy establishes the rights and responsibilities of all faculty, staff, and students … who
discover or invent a device, product, or method, while associated with the University, whether or not University
time or facilities are used.
– The University claims ownership and control of the worldwide patent and intellectual property rights which result
from activities of its faculty, staff, and students. University "faculty and staff" includes all persons who hold any
official faculty or staff relationship to the University…

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• IP Ownership
• Outsourcing development:
– Limit to non-core development projects for staff augmentation if possible and ensure knowledge transfer
• May undermine value to potential acquirer
– Get signed, written assignments of IP developed
– Get broad, non-terminable license to any “background IP”
– Ensure dedicated team
• Availability/expertise
• Avoid leakage to competitors

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• IP Ownership
 IP assigned or optioned to customers and others
• Joint development
• Customer owned deliverables
• Government funded development/grants

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• IP Ownership
 Beware of certain clauses
• Customer Owned Deliverables. All Deliverables are “work made for hire” for Customer. To the extent any
Deliverables do not qualify as a work made for hire, Supplier assigns all right, title, and interest in and to
the Deliverables, including all IP rights, to Customer. Supplier waives, and agrees not to assert, any moral
rights that may exist in the Deliverables.

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• IP Ownership
 Beware of certain clauses
• IP Non-Assertion. During and after the Term, you will not assert, nor will you authorize, assist, or
encourage any third party to assert, against us or any of our affiliates, customers, vendors, business
partners, or licensors, any patent infringement or other intellectual property infringement claim
regarding any Service Offerings you have used.

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• Third-Party Dependencies
 Software and other technology
 Data, text, video and other content
• User generated content
 APIs and integrations
 Design, manufacturing and supply relationships

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• Open Source
 Open Source and “Conditional” Licenses
 Legal and Practical Consequences of Failure to Comply with Open Source Conditions
 The Continuum of Open Source Licenses: From Permissive to Restrictive
 The Meaning of “Copyleft” and its Legal Implications
 Open Source Implications of On-Premise vs. SaaS/Cloud based Delivery Models
 Best Practices for Managing Open Source Compliance

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• Requirements for redistribution, access to source, attribution, etc. are stated as
conditions of the license grant
• Any act beyond scope of the license can be copyright infringement –
See Jacobsen v. Katzer (Fed. Cir. 2008):
 “If a license is limited in scope and the licensee acts outside
the scope, the licensor can bring an action for copyright
infringement . . . The clear language of the Artistic License
creates conditions to protect the economic rights at issue in
the granting of a public license.”
• Actual damages, disgorgement of profits, statutory damages, and attorneys’ fees
 Up to $150,000 for willful conduct, per infringed work
• Injunctive Relief
• Risk to Proprietary Code?
Open Source as Conditional License

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Continuum of Open Source License Conditions
Permissive Weak Copyleft Strong Copyleft
BSD Apache MPL/Eclipse LGPL GPL/Affero
MIT

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• Right to redistribute is central to the definition of “open source”
• Most problematic aspect of open source licenses
 Especially for derivative works and modifications under the Copyleft Licenses.
• Right to distribute verbatim code and derivative works/modifications
conditioned on compliance with:
 Copyleft/forcing provisions
 Attribution Requirements
 Advertising Requirements
 Disclaimers of Warranty
• If you don’t redistribute code, most conditions do not apply.
 Great for internal use applications and SaaS offerings
Redistribution as Trigger of Most Conditions

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• Maintain accurate inventory of open source
 Even for internal use or SaaS applications, because may want to distribute some day
 Use Palamida for internally developed and acquired software code
• Establish open source policies and Open Source Review Board
• Avoid Linking to Strong Copyleft Code in Distributed Applications
• Training, Training, Training
Best Practices for Open Source Compliance

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• Restrictions on Business
 Exclusivities
 Rights of first refusal/negotiation
 Sole source or “must carry” requirements
 Non-competition/non-solicitation clauses
 MFN and other pricing restrictions

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 Exclusivity. Company will exclusively use Supplier for the services and will not use any
other party for provision of the same, similar, or comparable services.

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 Right of First Refusal/Negotiation. Prior to making an offer to any third party to
develop and provide an Additional Service Offering, Developer will offer to Customer, in
writing, an opportunity to have Developer to develop and provide such Additional
Service Offering to Customer. If Customer proposes different terms and conditions to
Developer, Developer and Customer will, in good faith, attempt to negotiate a
definitive agreement under terms and conditions that are reasonably acceptable to
both parties.

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 Non-Solicit/No-Hire (Employment Context). For a period of one (1) year following the
Closing Date, (i) Seller will not (and shall cause its Affiliates not to) solicit (other than
general solicitations through newspapers or other media of general circulation not
targeted at such employees) any Buyer Employees and (ii) Seller will not hire any Buyer
Employees regardless of any solicitation activities during the period such person is an
employee of Buyer or any of its Affiliates and for six months after such person’s
employment with the Purchaser ends (unless such employment has been terminated
by Seller).

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 Non-Solicit (Business Context). For two (2) years following the Closing Date, Seller and
its Affiliates will not solicit or target persons or entities who were customers of
Business on the date hereof and as of the Closing Date, whether by personal contact,
by telephone, by facsimile, by mail or other form of solicitation or communication, or in
any other way except for general solicitations that are directed to the general public
and not directed specially to persons or entities who were customers on the date
hereof and as of the Closing Date.

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 Most Favored Customer (MFN). Seller warrants that the prices offered to Purchaser for
purchase of the Products shall be at least as favorable as the lowest prices at which
Seller has sold (or offered to sell) the Products to any other customer. If Seller has sold
(or offered to sell) the Products to any other customer at prices that are lower than the
prices that Seller has offered to sell Products to Purchaser, Seller will immediately offer
such lower prices to Purchaser. In addition, at Purchaser’s option, Seller will promptly
refund or credit to Purchaser any amounts charged to Purchaser in excess of the prices
offered to such other customer for purchases made by Purchaser as of the date it was
entitled to such lower prices.

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• Assignment/Change of Control Issues in Contracts
 Loss of critical third party technology
 Source code escrow or other springing rights
 Affiliates issues

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• Infringement Litigation and Threats
 Pending and prior litigation matters
 IP indemnity claims by customers/partners
 Solicitations from “non-practicing entities” and other patent holders
 Letters from prior employers of current employees regarding non-competition and
non-disclosure obligations

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• Export, Trade and Regulatory Compliance
 Establish and maintain a written export compliance policy
 Obtaining export control classification numbers prior to export
 Cross checks against embargoed country and denied person lists
 Submitting review requests for encryption and technology exports
 Obtaining export licenses for actual and “deemed” exports

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• Privacy, Security and Data Rights
 Data collection, use, retention and sharing
 Data security standards
 Breach notification procedures

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Stephen Gillespie (sgillespie@fenwick.com)
Christopher Joslyn (cjoslyn@fenwick.com)
Fenwick & West LLP
For more information, contact

Ip 101 for Startups

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