Do Sales Contracts Protect Startup’s IP?

When you’re initially setting up sales contracts for your startup. One crucial question to consider is how sales contracts safeguard the startup’s IP. The protection of intellectual property (IP) is really the only thing that will create value for your startup over time. As you build your IP as an asset the important it is to protect it. Sales contracts is one of the areas that this should be a focus in – as well as NDA’s and employee contracts. Clearly defining your IP and establishing clauses to protect it in your commercial contracts, Should involve heavy involvement from your lawyer. Here is a quick guide for you to understand why this is important.

What Does Intellectual Property Mean For a Startup?

In the context of a tech startup company, “IP” or “Intellectual Property” is one of the most (if not the most) valuable asset that a company has. Intellectual Property refers to creations of the mind, such as inventions, literary and artistic works, designs, symbols, names, and images used in commerce. In the tech startup realm, intellectual property often includes:

1. Patents: Legal protections granted for inventions or processes that are novel, useful, and non-obvious.
2. Copyrights: Protection granted to the creators of original works of authorship, such as software code, websites, and content.
3. Trademarks: Symbols, names, or designs used to identify and distinguish the goods or services of a particular company.
4. Trade secrets: Confidential information that provides a competitive advantage, such as proprietary algorithms, formulas, or processes.

Tech startups must protect and manage intellectual property to safeguard innovations, maintain competitiveness, and establish market presence.

How Should IP Be Defined In Your Sales Contracts

When creating a definition of your startup company’s intellectual property (IP) for sales contracts. You want to ensure clarity and comprehensiveness to avoid any misunderstandings or disputes. Here’s a suggested approach:

1. Define IP:

• Begin by clearly defining what constitutes intellectual property for your startup. This may include patents, copyrights, trademarks, and trade secrets.

2. Scope of IP:

• Specify the scope of the IP covered by the contract. This could include all existing and future IP developed by the company during the term of the contract.

3. Ownership:

• Clearly state that all IP created or developed by employees or contractors in the course of their work for the company is owned by the company. This helps avoid ambiguity about ownership rights.

4. Exclusions:

• Identify any IP that is not covered by the contract. This could include any IP brought into the company by employees or contractors, or any third-party IP licensed to the company.

5. Licenses and Permissions:

• If the contract involves the use of third-party IP or the licensing of the company’s IP to the other party, outline the terms of such licenses or permissions.

6. Confidentiality:

• Include provisions regarding the confidentiality of the company’s IP to protect it from unauthorized use or disclosure.

7. Indemnification:

• Consider including clauses that require the other party to indemnify the company in case of any claims related to the IP, to protect the company from potential liabilities.

8. Dispute Resolution:

• Specify the procedures for resolving any disputes related to the IP covered by the contract, such as mediation, arbitration, or litigation.

9. Governing Law:

• Determine the applicable jurisdiction and governing law for the contract, especially if your startup operates internationally.

10. Review by Legal Counsel:

• It’s advisable to have the IP definition and related provisions reviewed by legal counsel specializing in intellectual property law to ensure compliance with relevant laws and regulations.

By incorporating these elements into your sales contracts, you can effectively define and protect your startup company’s intellectual property rights while also establishing clear expectations for both parties involved.

How Do Contracts Protect Startup’s IP – What to Include

A well-written sales contract can protect your startup’s intellectual property (IP) in several ways:

Ownership Rights:

• Clearly defining the ownership of any IP created or used during the course of the contract ensures that your startup retains full ownership of its innovations. This prevents misunderstandings and disputes regarding the ownership of valuable IP assets.

Confidentiality and Non-Disclosure:

• Including confidentiality clauses in the contract helps safeguard your startup’s proprietary information and trade secrets. This prevents the unauthorized disclosure or use of sensitive IP by the other party involved in the contract.

Limitations on Use:

• By specifying the permitted uses of your startup’s IP within the context of the contract, you can control how the other party can utilize your intellectual property. This ensures that your IP is used only for the intended purposes and prevents unauthorized exploitation.

Restrictions on Transfer and Sub-Licensing:

• Including provisions that restrict the transfer or sub-licensing of your startup’s IP without prior consent helps prevent unauthorized distribution or exploitation of your intellectual property by third parties.

Indemnification:

• Incorporating indemnification clauses in the contract can protect your startup from liability in case the other party infringes upon third-party intellectual property rights. This shifts the burden of legal responsibility onto the other party in case of IP-related disputes.

Dispute Resolution Mechanisms:

• Establishing clear procedures for resolving disputes related to intellectual property ensures that any conflicts are addressed promptly and efficiently. This can help mitigate the risk of prolonged legal battles that could potentially harm your startup’s IP interests.

Termination and Remedies:

• Including provisions for termination and remedies in case of breach of contract helps enforce the terms related to intellectual property protection. This provides your startup with legal recourse in case the other party violates the terms of the contract regarding IP.

Contract Governing Law and Jurisdiction:

• Determining the applicable governing law and jurisdiction for the contract ensures that any disputes related to intellectual property are adjudicated in a favorable legal environment. This can provide your startup with greater certainty and protection under the law.

By incorporating these elements into your sales contracts, you can effectively protect your startup’s intellectual property rights and minimize the risks associated with IP infringement, misappropriation, or unauthorized use. It’s essential to work with legal professionals experienced in intellectual property law to draft and review your contracts to ensure comprehensive protection of your startup’s IP.

Basic Template IP Clause

Below is a basic example of an IP clause that addresses ownership, use, confidentiality, indemnification, and dispute resolution. Depending on what you need in a contract that protects your startups IP you will need to tailor and expand upon this clause with the assistance of legal counsel.

Intellectual Property Rights:

1. Ownership: All intellectual property rights, including but not limited to patents, copyrights, trademarks, trade secrets, and any other proprietary rights, associated with the products/services provided under this agreement, shall remain the exclusive property of [Your Startup Company] (“Company”).
2. Use License: The customer is granted a non-exclusive, non-transferable license to use the intellectual property solely for the purposes outlined in this agreement. This license does not grant the customer any rights to sublicense, modify, reproduce, or distribute the intellectual property without the prior written consent of the Company.
3. Confidentiality: The customer agrees to treat all confidential information provided by the Company, including but not limited to proprietary algorithms, processes, and know-how, as confidential and shall not disclose such information to any third party without the Company’s prior written consent.
4. Indemnification: The customer agrees to indemnify and hold harmless the Company from and against any claims, damages, losses, liabilities, and expenses (including reasonable attorney fees) arising out of or related to the customer’s use of the intellectual property in breach of this agreement.
5. Term and Termination: This IP clause shall survive the termination or expiration of this agreement and shall continue to be binding upon the parties and their respective successors and assigns.
6. Governing Law and Jurisdiction: This agreement shall be governed by and construed in accordance with the laws of [Your Jurisdiction]. Any disputes arising out of or in connection with this agreement shall be exclusively resolved through arbitration in [Arbitration Venue], in accordance with the rules of the [Arbitration Organization].

When you’re setting up your template contracts you should work with your lawyer to ask how your sales contracts protect startup’s IP and how this is specifically setup for your startup. Startups need an awareness and clear guidelines of how their IP is defined and a strategy to draft template contracts in a way that will protect their biggest asset.