Checklist Intellectual Property

I am mainly involved with VC deals in the web services sector. The targets rely on intellectual property (IP). Sometimes it is the foundation of their business model. Inhouse development can be found next to third party and open source code. In most cases VCs are the first to raise awareness among founders to care for the legal aspects of their IP, too, thus protecting their core business.

Unfortunately, hasty deal making and the need for capital gets the better of a thorough examination of the IP. The founders usually do not care that much. The VCs are confident to get over certain glitches by making changes to their boiler plate guarantee provisions. At the end of the day deals get closed and the IP problems are deferred to later rounds.

However, what might work well for seed investments or Series A rounds might not be sufficient in subsequent rounds. At that stage a lot more money comes to the table. The downside for investors gets much bigger. They will be more reluctant to accept guarantees but want solid IP protection instead.

Deferring IP issues works against early stage VCs and founders alike and endangers follow-on financing. So, this is my little piece of advice: From the word go founders should make sure that the IP lies with them or rather the company (= the target). I hope that my little checklist gives some indication of what to look at and which steps to take.

Checklist IP

1. patents, trademarks, trade names, corporate names, logos owned by target (otherwise licencing agreements etc.)

2. internet domain names registered in target’s name

3. assignment of all IP rights to target with respect to

  • inhouse software and database development via all employment contracts
  • third party software and database development via all development contracts or freelancer contracts

5. standard software used by target and licencing agreements

6. open source software used by target and licencing agreements

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