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IP protection and the development of the company, is it possible to control and prevent IP breaches?

Mr. Z. is a talented programmer who decides to establish a company for the development of his new innovative software “ZZ”. Mr. Z cannot perform the development all on his own and hires some employees—IOS/Android developers, javascript developers, as well as asks his friends to do the graphic design of the software. All goes well until Mr. Z realizes that his key competitor’s new software has similar functions and quite a close design to the one his team has developed, though he has been sure that the peculiarities of his new software were revealed only to his team’s current and past employees. Another issue occurs when Mr. Z argues with his best friend, who has been performing the UX/UI design of the software, and the latter starts to demand royalties for using his IP for Mr. Z's software.

This is a common scenario for new IT start-ups, who mostly concentrate on business activities and forget that their company has intellectual property, which is also important to protect. Mostly, these companies do not have employment contracts with their employees, do not control to what extent the third parties participate in the development of their software.

What steps are recommended for the protection of IP within such companies?

1. Don’t forget to conclude employment contracts.

According to RA legislation, the IP for the work done by hire belongs to the employer. This means that if there is an employment contract in the frames of which the employee does his job responsibilities and in the results creates IP, the copyright for such work will automatically transfer to the employer. However, be sure that the employment contract determines the job responsibilities of the employee correctly and precisely because if the work has been performed outside the employment capacity of the employee, there is a risk that the IP for that work will not be transferred to you under the employment contract.

2. Document the service provision of the third parties and sign IP transfer agreements.

For instance, if the graphic designer for your software is not your employee and there is no IP transfer agreement signed with him, this means that all the IP which can be created throughout the service provision will belong to him. In other words, he can use it for working with your competitors or for himself, can ban you to use the IP any moment he wishes, or can ask for additional royalties to be paid outside the fee for services already paid to him. For this reason, the local legislation allows to sign an IP transfer agreement and transfer all the IP created through service provision, which may also secure you from further claims and risks.

3. Sign an NDA.

If we consider the case of employees, the IP breaches can also happen because of their misunderstanding or carelessness. For example, many of them can sometimes use their PCs, personal phones which do not have the same security as the office technologies, or can discuss the company’s new software peculiarities over a glass of beer with their close friends on a Friday night. For this reason, it is essential to sign an NDA with the employees or insert NDA clauses in their employment agreements, which will ban the disclosure of internal confidential information of the company, including the IP and potential IP to third parties. Warning that the IP of the company constitutes confidential information and banning the disclosure of such information with an agreement may allow you to further claim for recovery of damages because of such disclosure.

NDA is mandatory to sign also with other parties providing services to the company who, by the virtue of the performance of such service, can get access to confidential information as well as IP, and with potential acquirers, investors before the transaction and due diligence preceding such transaction.

To sum up, it is essential to note that IP protection is an important step towards protecting your business and contributing to its development and monetization.

Author: Anzhela Abrahamyan / Associate


Disclaimer:

This material is produced by Legelata LLC. The material contained in this newsletter is provided for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this material.

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