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How do you mitigate the inherent risk of a one-person team?

Our team member - working with us part-time - has a day job with a large software company that owns all IP he creates. How much of a risk is this?

  • We are an early stage startup. We launched our alpha recently and will begin approaching some angel investors (right now, we are self-funded). One of our team member, who has been working part time with us (only for a little while, so far), has a day job with one of the large software companies. We just came to know that per his employment contract, his employer owns any IP he creates during the time he's employed with them. This guy cannot leave his current day job due to personal reasons. Our attorney suggests that it will be risky for us to continue with this guy unless he decides to leave his current employer (day job) - especially, when we approach investors, they would like to see that all IP belongs to our startup. We thought we would seek advice from other startups who had similar situation. What was your experience, and what would you suggest?

  • Answer:

    There are three possibilities here: Your employee owns the IP His company owns the IP Your company owns the IP. Your company doesn't own the IP unless he has assigned it to you (this will be a consulting agreement that he will have signed with you).   If he hasn't signed it, then either he or his company owns the IP.  You don't. If he has assigned the IP to you, that doesn't guarantee that his company doesn't have a claim.  He will have signed a proprietary information and inventions agreements document (PIAA) with his current employer that outlines what he owns and what they own.  Get a copy and get it to your lawyers. This is a mess that you need to clear up.  I'd recommend not working with him any more and working with your attorney on how to get the existing IP assigned to you in a way that makes it least likely you'll have issues later, both from your consultant and from his employer.  Also note that true risk to the IP may come from his making a claim on it, not his employer, especially if the relationship ends badly. And this is not something to care about because someday some investor might care.  This is not about investors, this is about you.  If you don't own the IP, you don't have a company.  This is part of the responsibility of being a CEO, so don't fail your first test. Think this is only a theoretical issue?  Watch "The Social Network" a couple of times and ask if the Winklevosses wish they had Mark sign a PIIA.

Michael Wolfe at Quora Visit the source

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Have you considered just addressing this directly with his employer? They may not have a problem with it and may be willing to put this in writing for you. These types of clauses are nasty, anti-entrepreneurial and debatable as to whether they can actually be enforced but I would definitely recommend either getting proper legal advice and making absolutely sure it won't come and bite you in the ass at a later date. I would definitely recommend getting this sorted before approaching potential investors because it will only come up and cause trouble later down the line.

Marcus Greenwood

Up vote for Michael Wolfe (as usual ;-) - but to answer the question directly - it's a HUGE risk.  Job #1 for every CEO is to "de-risk" everything.  Find legal counsel (check out Quora's question(s) on Startup Attorney's) and dig in - quickly.  You may not be able to salvage the IP - especially if it's remotely similar to the ISV where your employee has his daytime gig.  Best case - you're able to get the IP assigned.  That process will cost $'s and take time - so I'd start now.

Dan Munro

Are you sure they own "all" the IP he creates, or just the IP he creates "on the job"?  If you're using IP he creates "on the job," I'd say it's potentially a big problem, as I'd assume that company could obtain an injunction to stop you from using IP it owns, or get an accounting of your profits made from that IP, plus any potential devaluation of the IP caused by your company.  Not to mention huge legal costs if you get sued.

Alfonso Rabbit-Walker

On the technology buy-side this is a big problem if we uncover this at a target.  We prefer the sellers to go get a letter clearing the issue from the "day job" -- which can often be very tough or costly for the sellers -- but if the sellers can't get us that by signing or closing, we'll usually consider increasing the escrow or decreasing the purchase price to reflect the diminution of value/IP overhang I think most careful investors would also view this potential issue over your IP as problematic.

Anonymous

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