Information on legal and business topics from Canadian business lawyer Shane McLean

Keep your eye on the IP

Posted by Shane McLean on June 4, 2009

If your company is in a “knowledge based” business — in other words, if you are creating software, hardware or any other product or service that is typically referred to as “intellectual property” or “IP” — it is important that you are focused on some very important concepts from the very beginning.  You need to make very sure that your company owns all of its IP and there are no lingering rights in the hands of any contributor.

Think of your IP as a brick building.  You may have many individuals contributing bricks to the building from time to time (ideas, source code, etc).  Some of these people might be employees and some will be independent contractors, and some of those might eventually become former employees and contractors who don’t like you anymore.  Now imagine that a few years down the road, while you are in the midst of negotiating a sale of your building, one of those contributors comes out of the woodwork and demands to have their bricks back.  What if their particular brick is a key brick in your building’s foundation and your building can’t survive without it?  This is the kind of situation you can find yourself in (and I have seen) if your knowledge based business is not careful in the process of building its intellectual property.

It is critically important that every single person who ever contributes to your IP in any way agrees in writing that your business owns their contribution.  This includes employees and consultants.  The paperwork is not complicated and your legal counsel should have standard forms in the bag.  More difficult is having the discipline on the administrative side of things to get these things signed every single time and then to keep copies where you can find them when you need to (this doesn’t sound hard, but it must be because lots of people don’t take these precautions). 

If you ever plan (or may plan) to seek investors or buyers for your business, a standard due diligence process will involve a review of all IP agreements and your company will have to make representations to the investor/buyer about the “pedigree” of the IP.  In the context of a financing or sale you will have enough to worry about without having to chase people from your company’s past to try and get documents signed by them (hopefully without having to pay them to sign).  Better to put the appropriate processes in place from day 1.


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