A tech startup developing machine learning algorithms for e-commerce platforms approached our law firm with a significant legal challenge that threatened to stall their progress.
The problem
The startup faced a critical challenge when approaching venture capitalists for Series A funding. They had failed to secure proper IP ownership rights for code developed by contracted programmers. This oversight not only created legal uncertainty but also threatened to reduce the company's valuation. The situation demanded immediate attention to protect their intellectual property and maintain investor confidence.
The Solution
The company had contracted a group of independent developers to build a key component of their product, but the agreements in place were insufficient to establish ownership of the intellectual property (IP). As the startup prepared to pitch to venture capitalists for a Series A funding round, their prospective investors raised concerns about the lack of clear IP ownership. The absence of airtight IP assignment agreements not only risked future disputes but also diminished the valuation of the startup.
Our team conducted a thorough review of the existing contracts and found they lacked proper IP assignment language, leaving the developers with ownership of the code rather than the company.
Upon taking on the matter, our team conducted a thorough review of the existing contracts. It became evident that the agreements treated the developers as independent contractors without explicitly transferring ownership of the work product to the company. Without proper IP assignment language, the developers retained ownership of the code, leaving the startup in a precarious position. This oversight, while common among early-stage startups that prioritize speed over formalities, posed a substantial risk to the company’s growth trajectory.
Conclusion
We acted swiftly to address the issue, drafting IP assignment agreements that retroactively assigned ownership of all work product to the company. In doing so, we ensured the agreements included clauses that were enforceable under the laws of the relevant jurisdictions, along with warranties from the developers affirming that the code was original and free from third-party claims. We also added confidentiality provisions to protect sensitive business information disclosed during the project. To minimize the risk of disputes, we worked collaboratively with the developers, explaining the rationale behind the agreements and accommodating reasonable requests to ensure smooth execution.