Data, The New York Times, Basketball & Agreements

We are trying an experiment here. Rather than rewrite a post we have made on another of our blogs we have set forth the link below. That blog is for general counsel but the point is applicable to startups, too.

Here is a summary:

An article in The New York Times Magazine on Sunday March 14th on basketball provides an object lesson that you should own whatever data may emerge from any digital initiatives memorialized in a legal agreement.

http://globalgeneralcounsel.wordpress.com

Owning What Is Created.

This is the second in a series of posts about the landmines startups face when they skip using lawyers.  You can indeed not use a lawyer, just pay attention to what has to be done.  And, as usual, this is not legal advice.

OK, so you have a few employees and some independenet contractors–let’s say someone building your website and someone programming your nifty new mobile app.

So who owns what gets created?  The basic principle is that the person that creates something owns it, with some exceptions–among them employment or an agreement assigning rights.

You Make It, You Own it.

Generally, what employees create while employed is owned by the employer, without the need for a written agreement.  But to be safe, many companies have employees sign an assignment agreement, also known as a Proprietary Rights & Inventions Agreement.  This expressly specifies what is and is not owned by the employer.

Look at it this way.  It is rare that a company does not have employment agreements for key employees (say, the core management team).  If you are looking for venture capital, you can be certain that such agreements will be nothing short of mandatory.

For the independent contractors, the law is pretty explicit.  Typically, an agreement is necessary, one that either assigns the rights or makes it clear that the work being done is, by the nature of the engagement, owned by the party contracting the services of the independent contractor–i.e., the startup.  The latter sort of relationship and agreement is called “Work-for-hire” under federal law;  the former is usually called an “assignment agreement.”  Be careful:  usually, you cannot have a work-for-hire agreement that applies to work already started.

When it comes to the website itself and the programming, you’ll have to pay attention to just what is being owned.  Well, you say, it is the website.  Well, yes, but does the website include technology already created by the developer?  Similarly, does the programming include code written by the programmer that he or she used in a previous job?  Do you own it?

Next up:  What happens to the entrepreneur with the initial idea?

Economic Conditions & Your Agreements: Don’t Skimp.

Many of our startup clients are cutting back on using legal services because they simply cannot afford it.  We understand.  We get it.

Just be careful, though, when you review the agreements yourselves or when you skip the agreements.  We cannot give legal advice here but we start a series of posts that point out a few of the potholes or, more graphically, landmines in this approach.  Whether or not you use a lawyer is up to you.  Just make sure you read and understand the terms.

We’ll start with and overview of what is called “boilerplate.”  Not all of them–let’s just start with an overview.  No, we are not trying to be pedantic:  We are trying to be prudent.

Boilerplate matters.

The bad nickname of boilerplate applies to the legal provisions typically at the end of an agreement and too many clients and lawyers give them short shrift.  They are called boilerplate because they have been so heavily negotiated over the years that their terminology, grammar and the like is pretty much settled law.

But that should not keep someone from scrutinizing them.  Because they are so heavily negotiated it means that they are very important.  They are the ones that often determine the outcome of litigation.

For example, indemnification provisions shift the burden of liability among the parties.  Typically, the one with the least market power (or economic power) ends up with the most liability.  Moreover, look closely at whether or not the indemnifying party assumes the liability of defense costs–and when those defense costs are to be paid, and whether or not they can be retrieved under certain circumstances.