Corporate & Securities Law

Invention Agreements: A Potential Startup Killer

By Ryan

“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.

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Full post as published by The Startup Lawyer on November 14, 2007 (boomark / email).