Often during the early stages of a startup, founders will keep their existing jobs while working on the startup in their spare time. This enables them to pay their bills and live during the period before the startup obtains outside funding. There is a pitfall here for technical people, like hardware and software developers. What if the intellectual property being developed for the startup does not actually belong to the startup? It could happen.
Companies often require tech workers to sign an “invention assignment agreement” as part of their employment. When they do that, the tech workers are agreeing that any intellectual property that they are working on will belong to their employer. If the invention assignment agreement is narrow, it will specifically apply to IP directly related to the products and services of the employer. A broader invention assignment agreement might sweep in marginally related or even unrelated IP.
So, the problem is that the IP the person is developing for the startup might actually belong to his day-job employer, even if he or she is working on that IP at home, in the evening. The closer the relationship between the startup’s business and the day-job’s business, the greater the likelihood of a problem. A day job has an even stronger claim to ownership of the IP if the employee was using a company-issued computer to develop the IP. Before getting too far into developing any IP for the startup, therefore, a founder needs to review any employment agreements and invention assignment agreements he may have with his current employer. Then he can determine what his obligations are, and whether there is a risk that his new venture won’t even own the IP he is developing for it. In addition, the founder needs to ensure that he uses his own computer when developing any IP.
The flip side of this is that the startup needs to secure its ownership of any IP being developed for it. Founders should incorporate the startup as early as possible, and assign their IP to the startup in exchange for their equity. The startup needs to make its developers enter into IP assignment agreements. The startup can pay for this IP using either cash, if it has any, or equity in the startup, but it needs to pay something.