Invention Agreements: A Potential Startup Killer
“Get advisers” is a common recommendation given to a startup company entrepreneur. However, entrepreneurs should use caution when selecting advisers for his or her startup company. Your advisers may come pre-packaged with restrictive covenants that have the potential to kill your startup. One such restrictive covenant that could darken any startup’s day is an invention agreement. An invention agreement assigns all inventions produced by the employee to the employer. A watered-down invention agreement reads like this:
Mr. X agrees that any inventions, designs, improvements, and discoveries made by Mr. X during the term of Mr. X’s employment, solely or jointly with others, which are made with the employer’s equipment, supplies, facilities, trade secrets, or time, or which relate to the business of the employer or the employer’s actual or anticipated research or development, or which result from any work performed by the Mr. X for the Employer, are the exclusive property of the employer.
There have been instances where a startup company’s adviser is this Mr. X. And Mr. X is also a university professor subject to an invention agreement with the university. The university then tries to claim rights to the startup company’s intellectual property since Mr. X worked on the startup company’s design or application. Not good news for the startup company.So, get advisers, but be sure to ask if they are subject to any restrictive covenants like an invention agreement. If not, you may end up killing your startup.
About the Author
Ryan Roberts is a startup lawyer and represents technology companies through all phases of the startup process, including incorporation, seed & venture financings, and exit transactions. Click here to learn more about his practice.
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Please consider subscribing to The Startup Lawyer, following @startuplawyer on Twitter, or contact Ryan directly.3 Responses
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I have seen many advisors end up with a claim on the start up company’s IP when the start up refused to pay for the services of the advisor. An inventions agreement is one of the most important agreement to get signed by any advisor or contractor that gets involved in the early days of a startup.
Hi Ryan,
Thanks for posting this. I’m studying restrictive covenants in IP right now. I can imagine that the plaintiff would want to sue the advisee if it does well, but if the advisee company isn’t away of the agreement, do you think it could defend on that ground?
Or, would it have to be some kind of tortious interference with contract claim? We never touched that in my torts class (only did negligence), so I’m not sure what the requirements are for its proof, but I would think some kind of intent element would be there. Thanks!