From Snapchat to Facebook, it’s not uncommon for successful startups and tech giants to face lawsuits, but there is a big lesson in some of these cases for new founders with “million-dollar” ideas—and it is one that’s often learned too late.
“Often, the first time we see anyone think about an intellectual property assignment agreement is when an investor comes along,” Legal Vision general counsel Ursula Hogben tells StartupSmart.
“Because a knowledgeable investor will want to know who created the IP and who now owns it.”
In Snapchat’s case, co-founders Evan Spiegel and Bobby Murphy found themselves in an expensive lawsuit when one of the company’s original co-founders Reggie Brown claimed he came up with idea for Snapchat.
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In the lawsuit, Brown said he “independently conceived of the idea of a mobile device application that would allow a person to transmit a picture to another mobile device user — but the picture would then automatically delete itself”.
Snapchat, which is hoping to raise $US3 billion ($3.9 billion) to go public, has revealed in its initial public offering fillings that it settled the case by paying $US157.5 million to Brown with “no further amounts required to be paid in the future”.
“In February 2013, an individual filed an action against us, our predecessor entity and two of our officers in Los Angeles Superior Court, alleging that we were using certain intellectual property that the individual jointly owned with our founders,” it states.
This year, Facebook founder Mark Zuckerberg testified in court in an ongoing legal battle brought forward by ZeniMax Media, which claims its intellectual property was used by the social media giant to develop Occulus Rift.
“If you steal my bike, paint it and put a bell on it, does that make it your bike?” said a lawyer for ZeniMax Media.
But Zuckerberg responded in court by saying, “It is pretty common when you announce a big deal or do something like that all kinds of people come out of the woodwork and claim that they just own some portion of the deal.”
These cases show how important it is to the record straight from day one, says Hogben.
“Anyone involved in developing intellectual property should sign an IP assignment agreement and sign any IP regarding the company to the company,” she says.
“It’s a fairly standard form so it’s not difficult to obtain, but it’s incredibly important to get signed.
“It applies to the date from when the co-founder or developer became involved in the company … it can be drafted to apply from when you started working together.
“It’s not a complex document, it’s standard language.”
When developing an idea in a startup, anyone involved with creating intellectual property for the company should sign this agreement either as a standalone document or as a clause in an employee, app development or website development agreement.
“The key thing to consider is: if anyone is creating intellectual property for me I need them to sign an IP assignment agreement,” says Hogben.
In part two of this article, StartupSmart will explore what you as a founder can do to protect intellectual property and equity at your startup.