Startups: Plan ahead to avoid costly legal disputes (part II)
You have now thought through the issues which I set out in part I and you have a plan of action. Super. Your next steps might include doing market research, developing a prototype app, platform or product, exploring logos and branding ideas or reaching out to people in the Startup world or the industry you are looking to disrupt to get a steer on next steps. Good work.
As you will likely be engaging or approaching third parties at this stage, you should take measures to protect your idea and any rights you have in it.
Third parties may perform services and create IP for you at this stage. If a consultant has not specifically assigned such IP to you, the default position is that they own it, not you. Just check out the trouble that Innocent Drinks got into, as I mentioned in part I, to see how getting this wrong can be costly.
Clearly all Startups need to be alive to this issue and deal with it properly from the outset and I've set out some tips below on just how to do that.
Third parties will be exposed to your idea and how you intend to implement it. Therefore, you should have protection in place to stop those guys running off with your idea and claiming it as their own, which I have handily dealt with below.
3 Key Tips to avoid legal battles at this stage
1. Use a Non-Disclosure Agreement
If you are in the negotiating stage with a third party service provider and they are privy to sensitive information, or you are discussing your idea in detail with any industry people, you should ask them to sign an NDA (if appropriate in the circumstances). If so, they would agree not to disclose or use, for their or another's gain, details about your idea or other relevant confidential information. I can provide a template NDA free of charge.
2. Use an IP Assignment Deed
Where a third party has created IP for you, they should sign a form of IP assignment to transfer the rights in that IP to you or your company (if you have one (I deal with incorporating a company in Stage 3)). Ideally, the third party would have signed a consultancy agreement containing various protections for you, including in respect of IP. However, where you have not put a consultancy agreement in place, you should ask the third party to sign an IP Assignment Deed in your favour. Again, I have a template that I can provide free of charge. An appropriate NDA should also be used where you have not put in place a consultancy agreement.
3. Use a consultancy agreement
In all cases where someone is performing services for you as a contractor/consultant/free-lancer and is exposed to confidential and sensitive information, they should sign an appropriate consultancy agreement. That consultancy agreement should contain, among other things, robust IP and confidentiality clauses, as well as non-competition clauses for added protection against the poaching of your idea.
If the consultant has his own service company, then the individual should sign the agreement personally as well as on behalf of his/her company. Otherwise, you could be chasing a shell company with no money if something goes wrong. I will deal with consultancy agreements in more detail in part IV, so stayed tuned.
In Stage 3 - Incorporating a Company, I will look mainly at Co-Founder issues. In the meantime, feel free to click through to my Startup page for more legal hints and tips.
For more information about the legal issues that affect business startups please contact me on 0207 329 9090 or email me at email@example.com
The articles published on this website, current at the date of publication, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your own circumstances should always be sought separately before taking any action.