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Mother Knows Best: All Startups Need to Have a ‘Clean Room’


Everybody knows the typical story that Silicon Valley has made famous. A few young prodigies are working their corporate jobs while, “on the side”, developing a product or service that will change the world. When the new project gets enough momentum, the group quits their jobs, raises some money from Sand Hill Road, and eventually hits it big. However, what Silicon Valley lore rarely mentions is that the “on the side” part is critically important and often a breeding ground for future litigation.

Intellectual property (“IP”) claims can be devasting for any company, especially startups. These claims typically don’t manifest until the company has had some measure of success and the market has determined that its IP is valuable. To minimize the chance of costly IP disputes, early-stage companies should take several steps to ensure that “the right IP gets and stays in, and the wrong IP stays out”, otherwise known as having a ‘clean room’.

Some basic steps early-stage companies can take to minimize the chance of IP issues are set forth below. Thankfully, this is an area where “an ounce of prevention is worth a pound of cure.” Startups need not waste significant resources on these issues in the early days. Most of the steps listed below are either free (operational at the company level) or fairly basic, low-cost legal work.

  1. Work on Your Own Time. During the earliest stages of the company (usually pre-formation when the founders may be employed by another company), it is important that the founders work on the new venture outside of the hours that they are working their current job. This helps minimize the risk that the founders’ current employer(s) claim the new IP is theirs.
  2. Work With Your Own Resources. Further, it is just as important that founders do not use any resources or assets of their current employer (money, computers, software programs, etc.) to develop any aspect of their new company or product. This also helps minimize the risk that the founders’ current employer(s) claim the new IP is theirs.
  3. Document. The founders should create precise records that show all development relating to the new company was done outside of the scope of their current employment, outside working hours, and without the aid of any current employer resources.
  4. Pre-Entity Non-Disclosure Agreements (NDAs). Typically, work on a startup begins before the formal, legal creation of the company. If the company has more than one founder, the founders may consider entering into an NDA (or founders’ agreement that contains such provisions) to protect IP that is developed prior to the company formation.
  5. Contribute IP to the Company. At the company formation stage, all founders should assign their relevant IP to the new company. If a founder leaves the company for any reason (especially involuntarily), they may have leverage (and motivation to utilize such leverage) if they later find out they never assigned critical IP to the company (e.g., suing the company for IP infringement).
  6. Standard Employee Onboarding Documents. The company should ensure that all new employees (including founders who are employees) are required to sign standard employment agreements that contain customary confidentiality provisions and customary Proprietary Information and Inventions Agreement, or an equivalent agreement. The confidentiality provisions ensure that the company protects and maintains its trade secrets. The Proprietary Information and Inventions Agreement ensures that the company owns all IP created by the employee within the scope of employment. Like founders in #5, former employees may see opportunities later on if they did not assign all IP to the company.
  7. Standard Contractor Documents. Similarly, the company will want to ensure that all contractors agree to confidentiality terms and assign all developed IP to the company. Like founders and employees in #5 and #6, respectively, contractors may see opportunities later on if they did not assign all IP to the company.
  8. Create Policies and Educate Employees. Trade secret misappropriation cases are on the rise, and new employees can increase this risk by bringing IP from their prior employer(s) to the new company. The company should specifically instruct all new employees that they are prohibited from bringing any IP over from their prior employers. This will help put the company in a better position in the event a former employer of any new employee asserts trade secret misappropriation, or other IP claims, against the company or its new employees. On the other side of the coin, the company should create and implement policies that limit the access to, and distribution of, its own IP to only those employees that need to have access to such IP. The company should also consider policies, and technological solutions, regarding storage of IP on personal devices.
  9. Separate R&D Teams. R&D teams should be separated from customers and other third parties that may argue the company “took their idea”. The company will be in a strong position if its entire R&D team did not have any access to such idea, customer confidential information, etc.
  10. Artificial Intelligence. At this time in the United States, most output created by artificial intelligence will not be protected by copyright or patent. It is possible that output may be protected as a trade secret, but such protection only applies to output the company keeps secret and will not protect the company if the same output is provided by the AI to another company. Further, such output may contain third-party materials and infringe upon third-party IP. Accordingly, the company will want to create and implement policies regarding approval processes for using artificial intelligence tools that may create output the company will consider proprietary.
  11. Open Source. Some open source software and other open source materials are licensed under terms that require companies to openly disclose and license their source code and other proprietary materials. This is known as “copyleft” software. Accordingly, the company will want to create and implement policies regarding the review of all open source licenses that govern software or any other materials used by the company.
  12. Trademarks. Prior to naming the company or any new product or service, companies should do some research to determine whether or not there are any other companies, products or services in the same or similar market with a similar name that may file a trademark infringement suit against the company. Startups are better served to determine any potential trademark issues very early before any resources are spent on marketing and any goodwill has been built up under the potentially infringing name.

These are just some of the precautions startups should take to help minimize the chances of IP issues. Of course, there are other steps a company can take, and each one of the steps listed above could be addressed in greater detail. However, most startups will be in a good position as it relates to IP risk if they follow the above steps. If you find these precautions relevant to your business and need guidance in navigating them, don't hesitate to contact one of our dedicated attorneys in our Commercial and Technology Contracts group.

This content is made available for educational purposes only and to give you general information and a general understanding of the law, not to provide specific legal advice. By using this content, you understand there is no attorney-client relationship between you and the publisher. The content should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.


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