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Intellectual Property - Common Startup Mistakes

Konstantin Häfner2021-10-28

IP is a central topic in every VC investor’s due diligence, as IP will most often be the only and most relevant asset of the Company.

Things Even Early-Stage Startups Shouldn’t Miss (GER)

IP is a central topic in every VC investor’s due diligence as IP will most often be the only and most relevant asset of the Company. Founders are typically asked to personally give guarantees on IP-related matters. So here are some things even early-stage founders shouldn’t miss.

🛡️ Protect your own IP

At early stage, you should protect in particular your Company’s copyrights (by ensuring transfer to the Company) and trademarks (by registering them in the name of the Company), potentially also patents depending on the business model.

🤺 Don’t infringe other IP

Do some research, on what is already out there. If you are unsure, talk to a lawyer.

📝 Document all relevant IP-related matters

Investors will put a focus on your IP and ask you to show and, if necessary, explain all related matters.

⚠️ Ensure comprehensive transfer of all relevant IP to the Company, meaning all IP required for the business needs to be owned or in-licensed by the Company

“Owned” means that the ownership rights are transferred to the Company, whereas “in-licensed” means that the ownership remains with a third party but that the right to use is transferred to the Company. 

👷🏻 Employees:

Sec. 69b of the German Copyright Act already secures sufficient IP transfer with regard to software. You should nevertheless include a market standard IP transfer provision into the employment agreements you use.

Be aware of the Employee Invention Act, whereby inventions made by an employee belong to the employee if the Company has not claimed the inventions against payment of compensation.

🧑🏻‍💻 Freelancers:

Sec. 69b UrhG does not apply. It is therefore crucial to use a comprehensive IP transfer provision in the freelancer agreement, otherwise critical IP (such as pieces of your code) could remain with the respective freelancer.

👥 Cooperation Partners:

You cooperate with another company to build something new? Great! However, make sure that all newly created IP necessary for your business model belongs to you by putting a respective agreement in place.

🆓 Open source code snippets

Use only open source licenses that

  • don’t require you to publish your entire proprietary software just because you included some open source pieces,
  • allow you to exploit your proprietary software based on such open source code commercially,
  • i.e. avoid so-called copy-left effects (sometimes also called viral effects).

Check used open source licenses on such terms (Google research might already tell you whether the license at hand is “good” or “bad”) or let a lawyer do this.

Trademarks

Make sure to register your brand as soon as possible by filing an entry to the DPMA (Deutsches Patent- und Markenamt) Costs are usually EUR 300. If you want to protect your brand within the whole EU, you should register it with the EUIPO (European Union Intellectual Property Office). Costs are usually around EUR 1000.


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