3 tips for internet, technology and new media start-ups: No1 – intellectual property ownership.

POSTED BY Rick Shera
26 August 2010

posted in l@w.geek.nz | Intellectual Property | Copyright | Employment



For a business start-up, taking a great idea out of the proverbial garage to commercial success may be beyond the capacity of its creator.  External investment capital is often needed.

It is at this stage that I’ve seen some very good ideas come to grief, especially in the internet, technology and new media industries. 

 I’ve picked three issues that often crop up.  I’ll deal with each of these separately over the coming days.

The first is intellectual property ownership.

Any smart investor will want certainty around intellectual property ownership.  I’ve seen very keen investors, who were about to stump up significant sums, get cold feet on finding that there was any doubt around this.  Clear and provable ownership of intellectual property is critical.

Ownership of patents, trademarks, designs, plant variety rights and the like is obvious since they are registered.  If they are in the founder creator’s name, they will need to be transferred though.

Copyright is a little more complicated.  Because copyright arises automatically and is not registered (in New Zealand at least), ownership can be overlooked.  The default rule is that it will be owned by the creator (the author in copyright parlance).  So, for example, the creator of an original website will be the owner of copyright in that website.  There are four very common traps here:

  • Employees – Copyright in a work created by an employee in the course of their employment is automatically assigned to their employer (an exception to the default rule).  However, there can be real argument around the in the course of employment condition when employees are working outside normal office hours or away from the office altogether.  Finding out that the core intellectual property is owned by employees or ex-employees can be a real problem since there is no way of forcing them to transfer it to the company.
  • Founder creator – if the founder creator is not an employee of his or her company, then the copyright will belong to them not the company, even though they may be the sole director and shareholder.
  • Contractors – since they are not employees, the default rule applies to everything they create for the company – the contractor will own the copyright; not the company.
  • Collaborators – this category includes situations where the founder creator perhaps builds on something that a colleague has done or uses a third party core application on which to build further functionality. Ownership may belong to the third party or some parts may even be jointly owned.


The Answer?

  1. Make sure the work in question is clearly identified (including any iterations right from the start of its creation). 
  2.   Enter into written agreements to transfer the copyright (and all other rights) to the investment target company.  If that is not possible (as it often won’t be with collaboration efforts), make sure it is licensed to the company on terms which allow all anticipated commercialisation  As far as possible, do this at the start of the relationship (employee, contractor, collaborator).  

The danger in not agreeing ownership or licensing at the start is that the founder creator can be held to ransom by those third parties as soon as they know the investment hangs in the balance. 

Worse still, they either refuse to transfer or licence the copyright altogether or cannot be found, leaving a big hole in the asset base and, quite likely, turned off investors. 

In the next two posts, I’ll deal with Securities Act issues and ongoing investor relationships.

This is not legal advice in any jurisdiction. For that, you generally have to pay ;-)

POSTED BY Rick Shera
26 August 2010

posted in l@w.geek.nzIntellectual PropertyCopyrightEmployment



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