Tech startups survive on the value of their intellectual property. And it’s something that a founder will and should protect in anyway possible. When it comes to understanding how to protect a startup’s IP. There are a lot of ways to go about this If you’re planning to build a piece of B2B software. That will stand the test of time and become a legitimate business you’ll need to put some measures. In place protect the startup’s IP One a few different levels. We’re going to look at different sales contract clauses, simple internal measures and more strategic options in this post. We’ll also briefly talk about how Contract Sent can help you to navigate and manage this with you contracts.
Understanding Intellectual Property For Software as a Service Companies
Before we delve into the strategies for safeguarding a startup’s IP, let’s quickly address why SaaS companies treat IP differently in their sales contracts compared to other contract types involving software delivery. This distinction arises from the fundamental differences in how SaaS operates and the nature of the provided software. These differences primarily revolve around how the software is accessed, hosted, and maintained, as well as the ownership and licensing models involved:
1. Access vs. Ownership:
In traditional software licensing contracts, the customer typically purchases a copy of the software and owns that specific copy. In contrast, SaaS provides access to software hosted on the service provider’s servers. Customers do not typically own a copy of the software; they merely access and use it as a service.
2. Continuous Updates and Maintenance:
SaaS products are often updated and maintained by the service provider regularly. These updates can include bug fixes, security patches, and new features. In contrast, traditional software may require customers to purchase new versions or updates separately.
3. Multi-Tenant Environment:
SaaS platforms are often multi-tenant, meaning that multiple customers share the same software instance and infrastructure. This shared environment can raise concerns about data security and the separation of customer data.
4. Data Ownership:
In SaaS, customers upload and store their data on the service provider’s servers. The issue of data ownership and control becomes more critical in SaaS contracts, as customers want to ensure they retain ownership of their data.
5. Subscription-Based Model:
SaaS contracts usually involve a subscription-based pricing model where customers pay periodically (e.g., monthly or annually) for ongoing access to the software. Traditional software licenses often involve a one-time purchase or a perpetual license.
Due to these differences, SaaS contracts often contain specific clauses related to intellectual property and data ownership to address the unique aspects of SaaS offerings. These clauses aim to:
- Clarify that the service provider retains ownership of the core SaaS product and its underlying IP.
- Specify the customer’s rights to access and use the SaaS product during the contract term.
- Address data ownership and specify that the customer retains ownership of the data they upload to the SaaS platform.
- Define the service provider’s rights to use customer data for specific purposes, such as providing and improving the service.
- Address the handling of customer data upon contract termination or expiration.
Overall, the treatment of IP in SaaS contracts is tailored to the specific characteristics of SaaS services, emphasizing access and data ownership while ensuring that the service provider maintains control over their software and intellectual property. Traditional software licensing contracts, on the other hand, focus more on the transfer of ownership and the installation of software on the customer’s hardware.
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Examples of IP Clauses In SaaS Contracts
Below we’ve put two examples of IP clauses that could be found in SaaS contracts. The key difference between the two is product based. The first treats the IP as the product itself in which the startup maintains ownership of all IP. The second treats the IP in two buckets, the first is the IP of the product and the second is the IP that is uploaded into the product and it deals with the ownership of this IP separately. Please note that these are example clauses and are not to be used for contracting purposes. Please consult a lawyer for advice on what you need.
Contract Clause For Startup Maintaining IP of Platform
Intellectual Property Clause
1. Ownership of Intellectual Property:
The Parties acknowledge and agree that all intellectual property rights, including but not limited to copyrights, patents, trademarks, trade secrets, and any other proprietary rights, related to the SaaS product (“Product”) being provided under this Agreement, shall at all times remain the exclusive property of [Startup Name] (“Company”).
2. License Grant:
Subject to the terms and conditions of this Agreement, Company grants the Customer a non-exclusive, non-transferable, limited license to use the Product solely for the Customer’s internal business purposes during the term of this Agreement.
3. Restrictions:
Customer agrees not to, directly or indirectly, modify, reverse engineer, decompile, disassemble, or attempt to discover the source code of the Product, or create any derivative works based on the Product, without the express written consent of Company. Customer shall not sublicense, distribute, or transfer the Product to any third party without Company’s prior written approval.
4. Confidentiality:
Customer acknowledges that any information and materials provided by Company in connection with the Product, including but not limited to software code, documentation, and technical specifications, are considered confidential and proprietary. Customer agrees to keep such information confidential and not to disclose it to any third party without Company’s prior written consent.
5. No Assignment:
Customer shall not assign, transfer, or sublicense its rights under this Agreement to any third party without the prior written consent of Company.
6. Protection of IP:
Customer shall promptly notify Company of any unauthorized use or infringement of Company’s intellectual property rights related to the Product that comes to Customer’s attention and will cooperate with Company in any legal action taken to protect such rights.
Contract Clause For Customer Who Uploads Data To Platform & Want’s To Retain Ownership
1. Ownership of SaaS Product:
The Parties acknowledge and agree that all intellectual property rights, including but not limited to copyrights, patents, trademarks, trade secrets, and any other proprietary rights, related to the SaaS product (“Product”) provided by [Startup Name] (“Company”) shall at all times remain the exclusive property of the Company.
2. License Grant to Buyer:
Subject to the terms and conditions of this Agreement, Company grants the Customer a non-exclusive, non-transferable, limited license to access and use the Product solely for the Customer’s internal business purposes during the term of this Agreement. The Customer acknowledges and agrees that this license does not grant them any ownership rights in the Product.
3. Ownership of Customer’s Content:
Customer retains ownership of all intellectual property rights related to any content, data, or materials that they upload, transmit, or store on the Company’s platform as part of using the Product (“Customer Content”). Company does not claim any ownership rights over Customer Content.
4. License Grant for Customer Content:
Customer hereby grants Company a non-exclusive, worldwide, royalty-free license to use, host, store, reproduce, modify, and distribute Customer Content solely for the purpose of providing and improving the Product and fulfilling its obligations under this Agreement.
5. Confidentiality:
Both Parties agree to keep any information and materials provided to each other in connection with this Agreement confidential and not to disclose them to any third party without the other Party’s prior written consent.
6. No Assignment:
Customer shall not assign, transfer, or sublicense their rights under this Agreement to any third party without the prior written consent of Company.
7. Protection of IP:
Customer shall promptly notify Company of any unauthorized use or infringement of their intellectual property rights related to the Customer Content that comes to their attention and will cooperate with Company in any legal action taken to protect such rights.
Internal Operational Strategies To Protect A Startup’s IP
Having a template Non-Disclosure Agreement (NDA) in place with your startup’s employees is the easiest and most common internal thing you can do to protect a startup’s IP and sensitive business information. NDAs are especially important when employees will have access to proprietary information, trade secrets, or other confidential data. Here’s what you should consider including in an employee NDA for your startup:
1. Definition of Confidential Information:
Clearly define what constitutes confidential information. This should encompass not only existing proprietary information but also any information that the employee may develop or come into contact with during their employment.
2. Obligations of the Employee:
Non-Disclosure: State that the employee agrees not to disclose, share, or communicate any confidential information to any third parties without the company’s written consent.
Use Restrictions: Specify that the employee can only use the confidential information for the purposes of their employment and in line with the company’s business needs.
3. Duration of Confidentiality:
Indicate the duration for which the employee must maintain confidentiality. This can vary but often extends beyond the employee’s tenure with the company to cover information that remains sensitive even after employment ends.
4. Exceptions:
Specify any exceptions to the confidentiality obligations. Common exceptions include information that is already in the public domain, information the employee can prove was known to them prior to joining the company, and information that the employee is legally required to disclose.
5. Return of Materials:
Require the employee to return all company-owned materials and confidential information upon termination of employment.
6. Employee’s Responsibilities Upon Termination:
Clarify what steps the employee must take upon leaving the company, such as returning company property and ensuring the continued protection of confidential information.
7. Remedies for Breach:
Outline the consequences of a breach of the NDA, which may include injunctive relief, monetary damages, or other legal remedies available under the law.
8. Non-Compete and Non-Solicitation:
Depending on the nature of your startup, you may also want to include non-compete and non-solicitation clauses to prevent employees from working for competitors or soliciting your clients or employees for a specified period after leaving the company.
9. Governing Law and Jurisdiction:
Specify the jurisdiction and governing law that will apply in the event of a dispute related to the NDA.
10. Severability:
Include a severability clause to ensure that if any provision of the NDA is found to be unenforceable, the remaining provisions will still be valid.
11. Consideration:
Ensure that there is adequate consideration provided to the employee in exchange for signing the NDA. In many jurisdictions, the employment itself can be considered sufficient consideration, but it’s a good practice to state this explicitly.
12. Execution:
Include space for the employee and the company to sign and date the NDA.
Keep in mind that employment laws and regulations can vary by jurisdiction, so it’s advisable to consult with legal counsel to draft an NDA that complies with local laws and adequately protects your startup’s interests. Additionally, NDAs should be reasonable and not overly restrictive to avoid potential legal challenges.
Strategies For Making Your Startup’s IP Strong
Beyond the contract writing and contract management sphere, consider implementing the following strategies to make your startup’s intellectual property stronger:
1. Secure Patents and Trademarks
Identify elements of your software that qualify for patent protection. Additionally, register trademarks to establish a distinctive market identity, reinforcing your brand’s uniqueness.
2. Educate Your Team
Create a culture of awareness within your team about the significance of IP protection. From developers to sales representatives, fostering an understanding of IP importance can prevent unintentional breaches and enhance overall IP security.
The Role of Contract Sent
As you strategize and implement protective measures for your startup’s IP, Contract Sent acts as a reliable way to track the changes you have made in your IP clauses for each of your contracts. You can track this on a contract by contract basis or on an overall customer level.
Knowing how to protect a startup’s IP is a bit more than a query; it becomes a strategic must to build value over time. By adopting a holistic approach that combines legal contracts, internal organizational safeguards, and the strategic external moves, you’re not just safeguarding your product but laying the groundwork for building a moat around your business.
