Startup Legal FAQ 12 – Why Own IP?

What’s the big deal with owning all this IP? Isn’t there more to my company than just my IP?

Yes, there is a bit more to your company than its Intellectual Property. But, on average, not much more. So it’s important to keep good records about the IP you have.

Here is one of a bunch of good reasons why it’s useful for a startup to care about owning IP: If your company becomes the subject of serious interest by investors and acquirers, two of the basic questions their lawyers are going to ask as a part of their due diligence investigation are, “Do you own IP rights in your core offerings and can you prove you own those IP rights?”

If you cannot demonstrate to their satisfaction that ownership in your IP has been fully transferred to your company, then they are going to report to their client (your buyer) that your assets suffer from title defects.

Cue scary halloween pipe organ music, say, Bach’s toccata and fugue in d-minor…

Buyers and investors do not like title defects. Title defects give buyers and investors nightmares. Nightmares about dirty, stinking, little cockroaches crawling out of the woodwork saying, “That thing you just bought for several million dollars? Guess what? Once…long ago…I helped build it. But I never signed a work-for-hire agreement, so guess what? I still own it! Howdy, partner!”

And then the cockroach eats the buyer’s palpitating little heart out.

Needless to say, a report of title defects in your intellectual property is likely to result in a reduction of the price your buyers and investors are willing to pay. IP title defects and can sometimes kill the deal altogether.

So, again, be sure you own the stuff your company’s built on. Consider conducting a thorough IP audit. In anticipation of your eventual exit, be obsessive about securing and proving clean title to all IP assets.

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