How to protect your intellectual property Video Lecture | How to Start-Up your own Company (Video Course) - Entrepreneurship

hey everybody welcome to startup basics
it's me Jason Calacanis your host
welcome to the program this is the
program where we're going to go over the
most important issues that a start-up
has to deal with and just do it in a
very basic fashion with me as Todd
carpenter from Wilson Sonsini and Rachel
profit they've both been working with
startups for decades
you guys love working on startups you
could work further up the food chain but
you love startups right yes what do you
love about working with startups it's
fun it really makes our job fun I mean
we live vicariously through our
entrepreneurs and it really gets you out
of bed in the morning and we set up the
soma office and include it in there some
it's not really co-working space but
it's open space for early-stage
companies to work out of and it's it's
just so much fun to get energy and to
watch guys go through the the funding
cycle and the ups and downs of being an
entrepreneur it's yeah it's great
awesome well listen today's topic is an
important one it's what we commonly
referred to as IP intellectual property
has a lot of pieces to intellectual
property and I think this is something
where entrepreneurs like hear about and
think they have to protect themselves or
don't know so what is intellectual
property for somebody who's you know a
first-time entrepreneur and he or she is
just saying what do I need to do to
protect myself and my idea should I be
having angel investors sign NDA's do I
need to file patents from my you know
ordering food app well what is
intellectual property what's the purpose
of it let's just very basically talk
about it well the purpose is protection
of ideas and there's quite a few
different types of intellectual property
I mean the key buckets you've got
patents trademarks and copyrights which
are registrable IP so you can file with
US Patent and Trademark Office and and
then there's non registered IP so things
like trade secrets and those are
protected through confidentiality and
your measures to protect them the key
example there's the the formula to
coca-cola knowledge which is not patent
but patented but they keep it secret and
they they receive a business benefit
because of it and so
through that they get trade a trade
secret protection right and all the
employees there sign hey I'm not going
to take these trade secrets and sell
them so what's the if I start a company
let's just say you know a couple of
people in the dorm room or you know make
a little product and we call it Hoover
and hey it's pretty fantastic and you
know we've got three or four cabs there
and we're Incorporated and so we've got
a business we raised a little bit of
angel funding what should we start
thinking about doing and what is the
expense of this because that's I think a
big part of this is when do I go through
the expense so if I own inside.com or
uber comm do I need to get a trademark
or not and when do I decide to do that
so I think there's a whole host of
considerations when folks like you say
start developing something interesting
and have all these ideas and part of our
job is to counsel sort of the company
you're forming should have all the IP
related to it because then investors
like yourself will come in and want to
invest and they want to make sure the
idea lives not with the individuals
around the table but in that company
right so part of the initial
incorporation process is usually all the
founders doing a whole data dump of
business plans any IP they've had any
registered IP they've done you know
licenses etc all in and then on a
going-forward basis the company needs a
plan in place to make sure that all the
consultants and all the employees and
anyone who touches code or has brilliant
designs again all assigning it to the
company that's called IP assignment all
we're like exactly it's an agreement you
sign
exactly and you should anyone who
touches something about your company in
that way some sort of designer I mean
even sometimes the receptionist or us to
sign these things because you never know
what brilliant idea they're gonna have
should be assigning so literate the
receptionist says like you know what I
think like when you click on the uber
thing it should tell you how many
minutes like you want to make sure that
you own that thank you Oh Matt exactly
we all sign that when we go work for
somebody know what this is one thing
that happens a lot is people work on a
project and there's three of us and
we're going to start YouTube mm-hmm and
or actually snapchat would be a perfect
example where like they've just worked
on it and was one person's idea
according to and I don't know the state
of this I'm not asking to talk about
that specific case but in that case we
were all read there was one person who
says it was their idea the other two
people were like yeah that's a great
idea but we're starting a company and we
don't want to work with you and this
idea is kind of trivial and all that
kind of stuff
people navigate those kind of things
where a bunch of people had an idea and
we're drinking beers and coding on a
weekend and then suddenly two out of
three people want to make a business
what's the proper way to do that well
the proper way to do it is what Rachel
was describing and that's kind of what
we look at as the baseline for
intellectual property is these IP
assignments so whether you're a
consultant and advisor or an employee
there are separate agreements that every
company should have that whenever
they're involved with the company there
everything is assigned and the founder
should assign everything upon coorporate
incorporating the company and buying
their shares and hopefully if you've
done all that then the company owns
everything and it's not an issue if not
then you had to put the genie back in
the bottle here so do I go to the third
partner and say like listen I know that
you worked this weekend with us
iterating but you want to go work at
Google and we want to go do this thing
will you sign this piece of paper and
sometimes that cost the company money
and or shares right I mean we've had
circumstance where founders come to us
and they and I say oh great so there's
the two of you and they say yeah well
and there's this other guy or gal and
you know he or she helped us with the
first iteration but they've decided to
stay at their other job or they've
decided that they don't really want to
throw their heart and soul into this
startup what do we do right and then
that just becomes a risk allocation
exercise right are you going to say
we're going to do nothing and hope they
never knock on our door when we go blow
it for two billion dollars or do we go
to them now and say you know here's some
cash or hey here's a percent of the
company and you know thanks for your
time and can you sign this piece of
paper it's a bit like insurance and
that's challenging sell because when
we're having that conversation so you
know this is our buddy that's a friend
of mine right what are you gonna do but
and when when that buddy sees dollar
signs equal to one third of the two
billion dollar valuation right you know
we had a handshake deal on this that
will cost you quite a lot of I mean this
is what Zuckerberg went through for many
years without that you know in some
cases people who there was one person
who was fraudulently accusing without
that will get dismissed but then there
are other people who actually worked on
it and he changed entities a couple of
times and I guess it all worked out with
settlements right yeah so that's how
costly settlement yes it's much more
expensive to deal with in the future but
Jacques Rivera made this kind of mistake
should had a clear beginning or he
didn't make a mistake in that he wound
up getting the line chair I guess it's
how you can look at it depending yeah it
will note it is it's risk analysis the
lawyers one right there's a lot of legal
out here getting that settlement done so
what about trade marking stuff so if I
own inside.com
and the twitter handle that inside do I
need to trade market and worry about
that early on or later on because that's
a couple thousand dollars expense when
should I worry about that with the
caveat that we are not trademark lawyers
right we usually do recommend an initial
counseling with a trademark lawyer to
figure that out because in some
instances is going to be extraordinarily
important before you build a whole brand
around it
right because if you should learn that
it's infringing on something else or
it's too similar to another word or
another business idea these are things
it would be great to know before you
invest I see so if there was somebody
doing inside and it was a news app or a
news process there was gonna be a
likelihood of confusion I would have
just built a huge PR marketing campaign
around a brand I can't use them right
exactly for them right and I think a lot
of it depends on how critical those
words are that name or the trademark is
to your business is it just a random
assortment of consonants that you've
squashed together just because you could
get the URL or it's really critical to
what you're doing it is your company's
identity really built around this if
it's the latter that I think it's much
more important to do it earlier because
you're really building a business on the
premise that there's going to be value
in those words or those letters and if
you lose them 12 months into it you've
got a lot of work to do yeah and it does
there have been many instances where
people inadvertently launch something
absolutely and realize my god there's
somebody doing something very similar
and I see it happening over and over
again because people are doing apps and
they look and they say oh there's no app
called inside where there's no app
called this right and then there's
somebody who's been doing a website or a
cd-rom before that or something that is
exactly analogous to it and they just
don't even know about it
exactly and that's the problem it's just
how broad of a scope are you looking at
when you're doing your own analysis and
sometimes clients are extraordinarily
proficient at looking at all the USPTO
sites and doing Google searches and you
know
just very exhaustive and other times
they've been very narrow and said I
check the AppStore there's nothing else
there and so I've built my whole brand
around this and so it could be a good
you know and I saw it recently was
Facebook came out with a news app
speaking of news app called paper but
they called it Facebook paper and
there's a magazine in New York called
paper magazine that has an app and then
there was an app that was AB of the year
literally like out of the year called
paper yeah I just thought to myself what
is Facebook doing because Facebook is
showing everybody based on book we're
using face and they launched an app
called paper when this the editors
choice for the year was paper like that
is to me like how does that happen in a
big company like that I mean people make
mistakes
I don't a committee right yeah I mean
they that's a big difference between and
I think this is an important point with
respect to what you do with regards to
your intellectual property and in your
strategy in portfolio is you need money
to enforce things so if you have a giant
patent portfolio but you can't enforce
it it's not really all that effective so
I think startups need to be very
thoughtful about what they do and how
they build their strategy to make sure
that it's really going to be protective
and it's the best use of their dollars I
mean it's it better to do that or hire
another engineer or another salesperson
and trademarks are one thing because
we're talking about low thousands of
dollars but when you start getting into
patents we're talking about tens of
thousands of dollars to get them filed
and maybe hundreds of thousands of
dollars or more to actually as you're
saying implement them or defend them
correct so again I know you both not
patent attorneys that's a very
specialized thing but our startups that
you see generally today getting involved
in patents in terms of filing them or
does that happen like be round see
around gee around somebody says like hey
you know I want to file Padma this is
this I think it really does depending
which industry you're in right I mean
definitely there's clients even in
really early stages who are filing
provisional patents right to put a
placeholder in there and then they don't
have to think about prosecuting that for
at least 12 months yeah right and again
may be more important in a med device or
Pharma charges in like the app world
right I mean so just I think it depends
it's industry specific it's company
specific but you know you're right it's
a lot of dollars and sometimes that's
better spent getting the right talent to
actually do the product design
and what about when your company gets
caught up in one of these patent
dragnets because I had a company I
wanted to invest in and they were very
young but it was in the dating space and
I guess there's some people have all
these dating patents and they had this
letter and they were being shaken down
and it's like you know what we're
talking another episode about like very
easy for a VC or an angel to just like
sort of discount or move on to the next
investment opportunity when something
like this material happens and I was
like this guy's had I don't know if
you're gonna be able to overcome this
what did people do when they get that I
mean that's probably one of the biggest
risks I think to being in a startup
world is to Todd's point you have to
have money to enforce your rights right
so the best you can do is try to find
the middle of the fairway and hopefully
execute on a business plan in that way
but unfortunately the big folks with the
big deep pockets can shut startups down
what they want to write if they've got
the intellectual property or even the
lawyers who are willing to proceed down
that path because you'll die under a
stack of papers before you'll have a
chance to get your product out and
really defend yourself I think that's
why a lot of folks in this community
feel pretty strongly about patent reform
and the need for it where are we at with
that I mean it seems to be that the big
companies we see a lot must saying I'm
not going to sue anybody you know we'll
let you use our patents provided you
don't take patent action Samsung and
even Google seem to be cooling down the
rhetoric and then a bunch of other
people have sort of made patent
arrangements you get the sense that
generally we're moving towards
reasonable patents usage by tech
companies or is still hot but I think
you're seeing it more from Silicon
Valley companies that understand the
benefits of working together
cooperatively and you know Twitter
announced stuff years ago about this and
I said I think companies like that they
want to work collaboratively in an
ecosystem yes but there will be
competitors from outside the ecosystem
or some even within the ecosystem that
see it as a big strategic benefit so I
don't think it'll go away um they've got
a lot of smart people working on reforms
to help prevent it from stifling growth
in startups but I think we've got a long
way to go we're starting to see actually
in the entrepreneurial space which I
found really encouraging some people
saying I will not back down and I'm
going to
fight this I'm gonna raise money and I'm
going to crowdsource some funding I
can't remove the name of one of these
things yeah and this actually started to
work where they won't back down and
they're countersuing and they're like
basically trying to invalidate the
patents and find prior art people who've
done the idea before the patent came out
and really negate these so there's
actually some groundswell now amongst
the entrepreneur premier needs to do
this and sometimes it's it's always a PR
play to write because the big bad patent
holders you know they don't want their
name splashed all over the blogs and
Twitter right being the people who are
trying to shut down and and hamper our
economy right yeah so it becomes both a
political war in that regard and legal
war what do they have for they just out
for you to sign a piece of paper and
give them a little bit of money and
agree that like you
depends yes and it's usually the
invitational licenses how these come
across right so they want the other
wants something and it could be could be
equity it could be cash in some
instances I mean I've seen it where I
mean they're they're actually looking
for a total tease of operations they
don't want you to be auditive I think it
depends who it is and I think it's easy
to paint anyone that brings a patent
suit in a negative light but there are
people that truly are trying to protect
their product and their company and
they're doing it for genuine reasons
there are others that own patent
portfolios solely for the purpose of
suing people and trying to had to get a
settlement or a license and there's
she's own yeah there's there's people
all in between so I think really varies
depending on who's bringing the case now
what would happen if two people worked
on a project together for a couple of
months felt it was incorporated whatever
but they just couldn't see eye to eye to
partners just they go off on their own
and they both decide they're going to
make a better version so they both
worked on the social network and now you
know they both worked on friends here
but Susie's going to go make her friends
for 2.0 and Bobby's going to make
friends for 3.0 what happens then in
terms of a breakup like that and the
company getting shut down and then they
go on to do their own thing oftentimes I
think people just go on they're on their
way and as long as you can convince your
future investors and employees that
there's not overlap you're not taking
intellectual property that was created
by the other person and they just go on
their way and build their companies
sometimes you will have agreements
Express agreements
they actually just did one with a
start-up where the two founders split
after about a year and they entered into
an agreement that said we can both use
the stuff that was developed in this old
company ah and you can't sue each other
over it you know and then that way there
are two viable companies and they'll
just compete on the merits rather than
one trying to come and bring a claim
down down the road and and if in fact
there's true technology there that's
what you should do right because for you
to leave it in a company to your point
the prime never is gonna get properly
shut down right and then neither of you
have any ability to you know say I own
it actually neither of them own it
right to be able to actually go out and
effectively compete and sort of monetize
that business they probably does need to
be an agreement between them
intellectual property is not a perfect
science and you have to just do the best
you can is that a good way to look at it
like you can't ever be perfectly
protected or insulated you just got to
sort of protect yourself as much as your
budget allows and a certain extent as
much as you reasonably can but you
you're not going to get a hundred
percent protection no but there are the
baseline things the boxes you should
check like we talked about earlier they
every employee should sign an invention
assignment agreement every contractor
you know in the consulting agreement
there should be an invention assignment
clause so just the very basics like that
um I think you can you can really create
problems for yourself that wouldn't have
cost much much to avoid that's really
easy right I mean it's just one form
that everybody signs as part of the
employment package really and then if
you haven't done it and you've got ten
employees and you give it to everybody
to sign and somebody says I don't want
to sign it what do you do if I need to
think long and hard about what that
person is doing for the company right
because usually and we do we inherit
clients that haven't had great
housekeeping and we have to put a bunch
of retroactive agreements in place and
get all buttoned up but if there's this
whole doubt the question is what is it
about right is it because they want to
go and commercialize this on their own
do they want more cash do they want more
stock but you probably shouldn't allow
this critical engineer to continue to
develop your product if he could walk
out the door with everything he's doing
you know what I do I give him the raise
I haven't signed it that far exactly
right
and you like a hard core with me
I'd be a pretty good way to do this but
the yeah it's pretty simple to have
people sign that now what about the
people who are moonlighting and doing
stuff on the weekend cuz I get this a
lot yeah in fact I had dinner last night
with somebody who works for one of the
top three technology companies pretty
brilliant mm-hmm and he said he built
what he built which is pretty impressive
on the nights and weekends on his own
computers and that it was all cool too
which I said do they know it's cool
so what is if I invent stuff on the
weekends or nights at my house on my
internet connection with my laptop am i
cool there's a lot of presumptions about
that and that's I mean that's probably
one of the hottest topics these days
because everybody wants to be an
entrepreneur now that's sort of the the
thing of the day yeah and I think a lot
of its going to be extraordinarily
dependent on what their agreements with
their current employers say that's again
part of our day job is founders saying
hey can you look at this co-founders
existing employment arrangement and see
if what he's doing for me is kosher and
there are some agreements even with the
big folks in the valley that have
expressed thou shalt not do anything
even on your own time right really right
and they can say you can't on the
weekend develop something it depends yet
what state you're in
yeah because different states have
different employment laws but you know
California is very employee and employer
yeah if you're here you're you're safer
than other places in the country if they
pay you a ton of money give you a bunch
of options and you're in charge of the
company and that you know like where
you're a senior manager or something
can't they buy out that right or no do
you think you mean in California could
yeah well I mean there are sort of these
provisions that could effectively be
read as like non-compete but I don't
know that they can fully buyout your
ability to not work nights and weekends
and you know the points you made are the
ones that are the typical ones to check
right where you on your own equipment on
your own time you know not doing
anything related to the company in that
instances you're probably in a pretty
good area at least in California because
again it's a very Pro employee state
yeah but you're right to ask those
questions and frankly founders should be
asking that of their co-founders right
what else have you been doing and you
have any contractual restrictions
against helping me build this company
well these days
saying you're not doing anything that's
related to what your current employer
does is becoming harder and harder if
you work at Google that's a tough thing
to say yeah right you don't even know
what's going on in Google exactly
they're like yeah we're reinventing
matter sergey brin is creating a new
type of matter so everything on the
planet and in the universe is now part
of what Google's plan is they very
Menten matter right it's true and then
is there not an easier way to do this
which is to be upfront with your current
employer and say hey I'm doing this on
nights and weekends can I get you to
sign is there some kind of agreement and
sometimes I've seen even two simple
email acknowledgments which is that's
great you know I'm happy for you because
it gone are the days where people stay
at companies for even five years now
yeah nutshell has ten or a whole career
so I think we have to be aware of this
employee mobility reality and I think
that's usually the best advice write it
just to be upfront and allow them to
know that here's what I'm gonna do or
I'm leaving to go pursue this and then
you know you sort of hopefully
forecloses the nasty letter about do
Brockway with our trade secrets are you
telling them you know all our
confidential information cuz you just
were upfront candid with them about it
yeah you were honest about it an email
even though it's not a legal document
it's a pretty good thing to have I mean
if you haven't read and set from your
manager saying totally cool Jason you
can work on inside on the weekends when
you're working for Yahoo we don't have a
news mobile product currently I gotta be
pretty good yeah I would be good yeah
it's a pretty good start but I think in
the vein of advice like that we see an
awful lot of people that do very silly
things like download their sales client
list oh you know just things that like
that's don't people are in melodia
they're in a tech industry and they
should realize that this stuff is all
traceable and if you want to go start
your own company do it on your own do it
with your own ideas your own leads you
know because all of that stuff is as
very traceable so there's ways that you
can get yourself in a lot of trouble
with this has happened recently where
we've had people download do a data dump
right and then go work for another
stored up and then the big company sues
the medium-sized company and the medium
company does what they cut those people
loose immediately right they can't have
that liability boom absolutely I mean
you're and then if you were to do that
and start a company oh my god would you
be starting off on the wrong foot it
what's the point
there isn't one there is no point like
why would you take anything from the
current company just walk out the door
and not everything is you just start
over from scratch yeah if there's
overlap at all and in the business that
you want to develop in the business
you're currently working on that's
exactly the best advice quit go start
your company if you're that passionate
about it
alright I think everybody gets a pretty
good idea what you have to do here do it
right
I'm just out to have a decent lawyer we
could explain this stuff to you and give
you could counsel and I think those IP
assignment things are critical I'm going
through this all the time with people of
like have we done an IP assignment is
that also part of term sheets now that
the IP assignments get done or the first
round it's often a condition of closing
on the financing that everyone has
signed one of those so will will
frequently end up doing a little bit of
cleanup work just prior to closing
you'll realize oh I thought we had them
all but you know these two or three
folks didn't sign and we'll get them to
sign a retroactive agreement and make
sure everything's buttoned up awesome
well listen this has been another
amazing episode god I'm learning it's
good I get like free advising refresh my
refresh my knowledge of all this space
Todd and Rachel thank you so much and
thanks for Wilson Sonsini you guys
always supported everything I do I
really do appreciate that because you
know you know hard work in the team puts
into the launch festival most of it and
you know like you guys have literally
supported me from the beginning and you
continue to do it every year so that
really means a lot to me and I
appreciate it so okay well see you oh
I'm gonna go wait what clamps over here
we'll see you next time yes we can start
up some service