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Seeking advice: How to manage IP conflicts in a Startup?

6 points by gsk ↗ HN
I am teaming up with two other folks to create a software product. One of the person I am teaming up with runs a company already (legal consultancy). The product idea was originally his. His company will be the testing ground for the product and he will market it when we are ready to sell. He suggests that all the IP for the product we create be initially in the name of his existing company. When we are ready to sell, he says, he will transfer IP to the Startup. I am somewhat reluctant because I will be implementing the product (design, code) and would not be happy if I don't have equal stake from the beginning. Have you faced similar situations? How did you move forward?

4 comments

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bdfh42
It is vital to get these things properly resolved "up front" and to not rely upon promises of future action - it will all end in tears otherwise.

I would create a new legal entity to own the IP and divide the shares as seems appropriate to the founders. The new entity can enter into a license agreement (exclusive or otherwise) with the pre-existing business.

pg
He's saying, in effect, that he doesn't trust you. But he's then forcing you to trust him. You might be able to save the situation by agreeing on some definite milestone that you could reach in, say, a month, and which if you reach it the IP goes to the company. Then your risk is capped at a month's work, and his is decreased by a month's data about your performance.
gsk
Thank you, pg. He is a pragmatic person. Hopefully, we should move forward with an arrangement such as this.
gojomo
I would make sure Newco has an ironclad right to use, sell, relicense, etc. all relevant IP from Oldco for a specific low fee or other immediate consideration. Otherwise there's lots of risk that customers, investors, acquirers, etc. could get spooked about unclear IP ownership at important moments.

Also, there's a risk that your partner (or others with influence in his company) holds you over a barrel at some key point. Is your partner a lawyer giving legal advice for the whole Newco? If so, you may need to consult, even if just informally, another equally seasoned professional who can consider your interests and the Newco's interests without the mixed loyalties inherent in your partner and his company.

(If I sound wary, it's because I've seen a business partnership between one legally-savvy friend and another trusting friend degenerate into acrimony and lawsuits.)