Startup 101: Intellectual Property Is Not A Fundamental Human Right

Editor’s note: This article is part of the Startup 101: A Legal Perspective series, guest-written by Funkola Ani, a startup lawyer at The Longe Practice. Click here to see all the posts in the 8-part series.

 

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Tina and Tom have been more than generous. They have graciously allowed me to also share their Intellectual Property (IP) experience with you in this post.

As Odun mentioned previously, Tom worked on the branding of the product. He designed the logo which was a lot of work as Tina continued to ask for revisions until they both agreed on one that satisfied them both. Tom worked with one of his friends, Timothy on the logo and had to pay Timothy for his services. Timothy is a freelancer and graphic designer and as at the time of designing the logo, consulted with an advertising agency. Timothy did some of the logo design during office hours with the agency’s iMac, as he needed some functionalities of an iMac, which he didn’t have on his laptop at home.

Tina on the other hand worked on a laptop which was given to her at work, although she never worked during office hours. She would stay up all night coding, and and on weekends, you would find her at Terra Kulture, still coding.

To launch their product in beta, Tom and Tina got some funding from Chief Taylor, an angel investor in form of convertible notes. However, before reaching an agreement with Chief Taylor, Tom and Tina made pitches to three possible investors including Chief Taylor, the others being Dr (Mrs.) Tricia Thomas and Prof. Trevor. In making their pitches, they made known some of their processes and methods, but did not sign a Non-Disclosure Agreement (NDA). In fact, the only person they signed an NDA with was Chief Taylor, and this was only after he indicated an interest in investing, and at the point of executing a term sheet.

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*Sigh*. I know this is a rather convoluted story. But quite often, this is what happens with Nigerian entrepreneurs, and I am  just trying to ensure that I cover almost of the intellectual property issues you are likely to encounter as you build your startup.

I’ll start from the bottom, up.

Almost everyone reading this can identify with making pitches when looking for “angel” investors; you have exhausted your “family and friends” credit line, and you want to get your product out there. There are teeming financial constraints, and there’s this one “distant uncle”, “former customer when you worked in a bank”  or “Godmother’s husband’s friend ” with pockets full of cash who digs your product or idea and is willing to put down the finances you need. When you have an opportunity to convince this “angel” (or several angels before you meet this chosen angel), you get really excited and disclose almost everything about the business to get them to buy into it, or at least just understand it.

Okay. It is time to step on the brakes and take a step back. You need to curb your excitement and strike that balance of disclosing as little as possible while saying just enough to get their buy-in.

First thing you need to do is be frugal with the oral disclosures and provide a one or two-page product paper or business description to prospective angel investors without the TMI. You can include a header or footnote that says “Strictly Private and Confidential”. You might also include a paragraph at the end, asking the prospective investor to “sign here” to express their interest. This sets the ball rolling for “formalities” and proper discussions.

Chances are that when you do not commit things to writing from the beginning, it will be super difficult to ask Dr. (Mrs) Tricia Thomas at the point of signing a term sheet, to sign an NDA for  information you shared with her informally over drinks at Southern Sun and text message exchanges. Set the tone from the beginning and ensure that things are properly documented and signed.

After you have a signed expression of interest, you can then proceed to have the interested prospective investor sign an NDA, which basically restricts them from sharing the information you provide to them on the business or product, except it is information already in the public domain. At this stage, you are fine to disclose financials, processes, methods, business plans and all.

Now, an NDA does not protect you where Chief Taylor gives his son your business plan as a template to draw up a plan for his restaurant business. As an added step, I usually advise that you register the copyright of your business plans, pitches or your company’s play-book at the Nigerian Copyright Commission (NCC). Should you choose to copyright with the NCC, you can include a copyright notice “©” on your documents. This is evidence of your intellectual property ownership right (copyright) in the document.

Aside – Now many people use the © symbol carelessly, if you have not registered the “work” having the © symbol at the NCC, that © is just a decorative appendage and grants you no rights.

Recall that Tina works hard, coding after work hours, late into the night and also on weekends. This is the story of quite a number of startup founders — you have your 9 to 5 but you start working on your big idea and set a milestone for when to hand in your resignation letter. Some employment contracts or employee handbooks contain an IP assignment clause whilst some employers actually have it as a standalone agreement (IP assignment agreement). The clause typically states that any invention, design or idea that an employee creates using the company’s resources and during the ordinary course of business (i.e. working hours) belongs to the employers. Doesn’t that just suck?!

So for Tina, even though she did all the work outside of her working hours, she worked on her office laptop. And for Timothy who not only used the office’s iMac but also designed the logo during office hours, the ownership of the IP boils down to what is contained in their employment contracts or in the IP assignment agreement. However, Timothy being a freelancer may not have been subject to a strict employment contract as a full time employee would be.

I’d just like to say at this point that if you are an employee, it’s best to dig out all the paperwork you signed at the point of being hired and your employee handbook, and look at it again, so you know what rights you have and those that you gave up. Even where you have registered the IP in your name, the assignment agreement pretty much dashes assigns the rights in the registered copyright, trademark, service mark, design or patent to your employer. If you are an employer, (which is most likely the case as a startup founder), it is best to consider having all employees sign an IP assignment agreement if this was not done at the point of hiring, except of course, you have no issues with everyone keeping the IP they came up with in the course of their duty in your service. I plead with you though, please make them assign all IP rights related to your startup/products developed by your startup.

And for Tom, who worked hard and even paid Timothy for the logo (let’s assume here that Timothy owns his own graphic design company and runs it full-time, so there are no issues with his employers being the likely owners of the IP), should the trademark in the logo belong to Timothy, Tom, or even Tina who came up with all the revisions or to the company?

Odun had mentioned in one of the previous posts how important it is to have a pre-nup Founders’ Agreement when you enter into a Founders’ relationship. One of the clauses in this “pre-nup” should be an IP assignment clause and it should clearly state who owns what, regarding all IP. Typically, the  norm is to assign all IP in relation to the business (regardless of where and when it was conceived and on what equipment it was generated), to the company, i.e. the legal entity that was formed for the startup. With the inclusion of this clause, the logo would not belong to the freelancer, founders, the majority shareholder or even the person who paid for it. It would belong to the company, period! To buttress and further legitimize the company’s ownership, the next step will be to register the logo as a trademark of the company at the Trademark Registry under the Ministry of Industry, Trade and Investments.

If only Tina and Tom had put all these measures in place, they would have saved themselves so much headache, pain and heartbreak… Now we have to do a corporate/IP mop up or even go to court or arbitration to get all these issues resolved. I hope you would not make the same mistakes but put in place the right measures to prevent a similar situation from happening to you.

As always, please feel free to leave comments and questions.

Funkola.

Disclaimer
Articles do not constitute legal advice, neither has a lawyer-client relationship been created by engagement in the comment section. If you require professional legal advice, kindly contact your legal adviser.

2 Comments

  • I have been looking forward to this post… i was having a discussion a while back with my co-founders – and i’ll like to believe from what was said that we did not think this way – being our first time starting something – but i couldn’t agree more about making the issue of IP as clear as possible. Thanks for the enlightening article.

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