UK review by Chris Coulter
Many startup companies rely in their early stages on advisors to assist with strategy, fundraising, introductions, technology and other areas. Generally, advisors in startup companies receive their compensation in the form of equity (stock options) rather than cash. Where an advisor is providing real services for compensation, companies should memorialize their relationship with the advisor in the form of a written agreement.
The agreement between a company and its advisor generally includes an assignment by the advisor of all intellectual property rights in any inventions or works that the advisor conceives of, creates or develops in the course of providing services under the advisor agreement or that are based on the company’s confidential information (the “Inventions”). A prospective advisor may be skittish about signing such an agreement. She may be concerned that this obligation might be inconsistent with her obligations to her employer, her university or to one or more of the other startups that she advises.
Suggestions and feedback can lead to “joint inventor” or “co-inventor” status
Although the prospective advisor’s concerns are reasonable, the company also has legitimate reasons for including an assignment of ownership provision in its advisor agreements. The company wants to ensure that it has an unrestricted right to use any products that are derived in any way from the services provided by the advisor. Those services might include obvious contributions to intellectual property like code or software architecture, but they might also include less obvious contributions in the form of suggestions or feedback regarding the company’s business, technologies and products. This can be of particular importance if any of the advisor’s suggestions or other contributions may later be determined to have made her a co-inventor of an invention for which the company seeks a patent. Without an assignment of ownership or other agreement addressing the issue, if she is deemed to be a co-inventor or joint inventor of a patented invention, she may be entitled to block use of the invention or derive income from its licensing. Not an ideal situation for the company.
Three ways to address Advisor concerns
If a potential advisor has concerns about signing up to a more standard inventions assignment provision that we typically would include in our form advisor agreements, below are a few ways to address the advisor’s concerns. However, it’s important to note that these should not be viewed as common approaches, and in most cases the company should own all key intellectual property outright.
- The company may retain ownership of the Inventions, but grant the advisor a perpetual, irrevocable, nonexclusive, worldwide and fully paid license to use the Inventions she creates. This approach ensures that the company has the unrestricted right to use the Inventions and owns any patentable Inventions, but grants the advisor a license to use the Inventions (excluding any company confidential information included in such Inventions). The company can protect itself from the advisor’s (or its sublicensees’) use of the Inventions in competitive products by excluding such products from the license granted to the advisor.
- The advisor may retain ownership of the Inventions (excluding any company confidential information included in such Inventions), but grant the company a perpetual, irrevocable, nonexclusive, worldwide and fully paid license to use the Inventions. This approach still ensures that the company has the unrestricted right to use the Inventions. The company can protect itself from the advisor’s use of the Invention in competitive products by negotiating an exclusive license to use the Inventions in a field of use that covers the company’s products.
- The company may wish to propose a simpler feedback provision. The “feedback” provision would state that the company would own any ideas, suggestions or other feedback that the advisor provides to the company with respect to its business, products and/or services or based on the company’s confidential information, and that the advisor would assign all right, title and interest to such feedback to the company. This covers the essence of what most advisors are likely to contribute to the company, and allows the company to explain the issue with simpler language that does not scream “I need to run this by my lawyer”.
Last reviewed: May 31, 2014