In a knowledge-based economy like India, intellectual property (IP) is considered significant not only in fostering innovation and maintaining a competitive edge but also in securing the value of a company’s intangible assets. By prioritising IP protection in the founders agreement, start-ups and collaborative ventures can establish clear guidelines on ownership, confidentiality, licensing and dispute resolution. This ensures the company’s ability to capitalise on its IP assets, secure investor confidence and enforce its rights against infringers.
By addressing IP concerns in the founders agreement, founders can lay a solid foundation for long-term success in the dynamic and competitive business landscape. Also, including comprehensive provisions for protecting IP in the founders’ agreement can help founders establish clear guidelines on IP ownership, confidentiality, licensing and dispute resolution.
Understanding Intellectual Property Rights in Context of Founders’ Agreement
To get a clear understanding of IP rights in context of founders’ agreement, the below mentioned points need to be understood first. They are:
What are the different Kinds of intellectual property rights?
- Copyright: Copyright registration gives protection to the original works of authors, which includes literary, artistic, musical and dramatic works. Copyright protection arises automatically upon the creation of the work and provides a limited duration of protection.
- Trademark: Trademarks can be defined as those symbols, names, logos, slogans that help in distinguishing the goods or services of one business from another business. This serves to identify the source and quality of a product or service and thereby helps build brand recognition and trust on part of the consumer.
- Patent: Patents act as recognition and protection for inventors, granting them exclusive rights to prohibit unauthorised making, using, selling or importing of their inventions. Patents are granted for new, useful and non-obvious inventions and provide inventors with a limited monopoly period.
- Trade secrets: Trade secrets encompass confidential business information that provides a competitive advantage. This includes formulas, processes, customer lists and other proprietary information that is not publicly known. Trade secrets are protected through maintaining secrecy and implementing reasonable measures to safeguard their confidentiality.
Importance of identifying and protecting IP assets
Identifying and protecting IP assets is important for several reasons:
- Competitive advantage: IP assets can provide a unique selling point, differentiating a company’s products or services from competitors. Protecting IP assets ensures that competitors cannot exploit or imitate the company’s innovations, giving the company a competitive edge.
- Value and revenue generation: IP assets can have significant value, both in terms of the potential for licensing or selling the rights to others and in generating revenue through their commercialisation. Proper protection ensures that the company can fully capitalise on its IP assets.
- Investor confidence: Investors often assess a company’s IP portfolio to evaluate its potential for long-term growth and profitability. Strong IP protection demonstrates the company’s commitment to safeguarding its innovations and enhances investor confidence.
- Legal recourse: Protecting IP assets strengthens a company’s ability to enforce its rights and seek legal remedies against infringers, deterring potential unauthorised use and minimising the risk of costly litigation.
Necessary Details While Incorporating IP Protection in the Founders’ Agreement
For the purpose of incorporating provisions related to intellectual property in a founders’ agreement, there are numerous essentials to be taken care of. Following are some of them:
Defining intellectual property ownership:
- Establishing ownership of IP created before the agreement: The founders’ agreement should address the ownership of pre-existing IP brought into the collaboration. Clear provisions should be outlined to specify whether the pre-existing IP remains the property of the respective founder or if it will be transferred to the company.
- Determining ownership of IP created during the collaboration: It is essential to establish ownership rights for IP developed during the course of the collaboration. This can be achieved by defining that any IP created by the founders jointly belongs to the company or by specifying individual ownership rights based on each founder’s contributions.
Confidentiality and non-disclosure agreements:
- For protection of trade secrets and other such sensitive information: Safeguarding trade secrets and sensitive information is of utmost importance in the founders’ agreement. Founders must incorporate strong confidentiality and non-disclosure provisions to protect their invaluable trade secrets. This ensures that founders are legally bound to maintain confidentiality and prevents unauthorised disclosure or use of sensitive information.
- Implementing confidentiality obligations for founders: The founders’ agreement should outline the obligations of founders to keep company-related information confidential, both during the collaboration and after its termination. This includes specifying the scope of confidential information, the duration of the obligation and the consequences of breaching the confidentiality provisions.
Assignment of IP rights:
- Transferring IP rights from founders to the company: To ensure the company has full ownership and control over the IP assets, the founders’ agreement should include provisions for the assignment of IP rights. This involves founders transferring their rights, title and interest in the IP created during the collaboration to the company.
- Addressing IP rights in the event of founder departures or disputes: In case of founder departures or disputes, it is important to address the treatment of IP rights. The agreement should outline mechanisms for the transfer of IP rights from departing founders to the remaining founders or the company. It should also specify procedures for resolving IP disputes among the founders.
Licensing and royalty agreements:
- Granting licences for the use of IP: The founders’ agreement can include provisions for granting licences to third parties to use the company’s IP. This allows the company to generate revenue through licensing arrangements while maintaining control over the use and quality of the licensed IP.
- Establishing royalty agreements for IP usage: If the founders agree to licence the IP internally within the company, the agreement should establish royalty agreements to determine the compensation or usage fees for the utilisation of the licensed IP. This ensures that all founders benefit from the commercialisation of the IP.
Non-competition and non-solicitation clauses:
- To prevent founders from competing with the company with use of IP: Non-competition clauses protect the company’s market position and prevent founders from leveraging the developed IP against the company’s interests.
- Restricting founders from poaching employees or clients using IP: Non-solicitation clauses can restrict founders from soliciting or hiring employees or clients of the company using the knowledge or connections gained through the IP. This safeguards the company’s relationships and prevents unfair competition.
What are the Ways of Resolving IP Disputes in a Founders’ Agreement?
Disputes relating to intellectual property may arise at any time in any organisation, which is why it becomes essential to understand the ways to go about resolving such issues expeditiously. Some essentials to consider in this regard are:
Establishing dispute resolution mechanisms
Mediation, arbitration or litigation options: The founders’ agreement should outline the preferred methods for resolving IP disputes. Mediation and arbitration provide alternative dispute resolution mechanisms that can be faster and more cost-effective than traditional litigation. Mediation involves the involvement of a neutral third party who facilitates open dialogue and assists the parties in reaching a mutually agreeable solution while litigation, the traditional court process, involves presenting the case before a judge or jury for a final determination.
Enforcing IP rights
Cease-and-desist letters: In a case of suspected infringement of IPR, the party so affected can choose to send a cease-and-desist letter to such violator. This letter asserts the IP rights, demands the cessation of infringing activities and may request compensation or negotiation for a licensing agreement.
Legal remedies for IP infringement: In cases where informal measures fall short, founders may need to resort to legal action to protect their valuable IP rights. When faced with IP infringement, founders can pursue various remedies to ensure appropriate redress. Seeking injunctive relief becomes important to put an immediate stop to the infringing activities and prevent further harm. Monetary damages can be sought to compensate for losses suffered as a result of the infringement, including lost profits and financial harm incurred. Additionally, founders may choose to be compensated on account of profits derived from the unauthorised use of their IP, ensuring that infringers do not unjustly benefit from their creations. By using these legal remedies, founders can assert their rights, deter potential infringers and maintain the integrity and value of their intellectual property assets.
What are the Best Practices for IP Protection in Founders’ Agreements?
Some of the best business practices for IP protection in a founders’ agreement as are used by businesses in India are as follows:
Conducting IP due diligence:
Before entering into a founders’ agreement, it is essential to conduct thorough IP due diligence. This involves assessing the ownership, validity and scope of existing IP assets to ensure proper protection. Identifying any potential infringement risks or gaps in IP ownership can help mitigate future disputes.
Registering and maintaining IP rights:
Registering applicable IP rights, such as trademarks or patents, strengthens legal protection and provides evidence of ownership. Founders should proactively register their IP assets and diligently maintain the necessary documentation and renewals to ensure ongoing protection.
Regularly reviewing and updating the agreement:
Regularly reviewing and updating the founders’ agreement is important for founders to adapt to the dynamic landscape of IP ownership, business strategies and legal requirements. As the company evolves, it becomes significant to ensure that the agreement remains in sync with the current state of affairs and provides strong protection for the valuable IP assets. By staying vigilant and proactive in this regard, founders can address any changes in IP ownership, incorporate new business strategies and comply with evolving legal standards.
Seeking legal counsel for guidance:
Engaging legal counsel experienced in IP law can provide valuable guidance throughout the process of drafting and finalising the founders’ agreement. Professional teams like StartupFino can help founders navigate complex IP issues, ensure compliance with relevant laws and regulations and tailor the agreement to the specific needs and goals of the company.
Final Thoughts
Incorporating strong intellectual property protection measures in a founders’ agreement is essential for start-ups and other business ventures. By defining IP ownership, implementing confidentiality obligations, addressing assignment of IP rights, establishing licensing agreements and including non-competition clauses, founders can safeguard their valuable assets and maintain a competitive advantage. Additionally, establishing dispute resolution mechanisms and understanding enforcement options provide a framework for resolving IP disputes.
Adhering to best practices such as conducting IP due diligence, registering and maintaining IP rights and regularly reviewing and updating the agreement ensures comprehensive and effective IP protection. By prioritising IP protection in the founders’ agreement, founders can encourage innovation, protect their investments and position their companies for long-term success.
To find more information on IP protection and founders’ agreement, contact our team of experts at StartupFino.
