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5 Questions VCs Ask Startups about Copyright & IP You’ll Need to Answer

Photo Credit: Zoosk Startup and VC Speed Dating at Tech Crunch Disrupt 2010 by Howard Greenstein

Photo Credit: Zoosk Startup and VC Speed Dating at Tech Crunch Disrupt 2010 by Howard Greenstein used under CC BY-NC-SA 2.0

Situations where potential venture capital investors are grilling start-up management always seems to bring the T.V. show “Shark Tank” to mind.

I don’t know how many times I watched as one of the “sharks” on that show told some poor business bait that money would be offered to invest based on a plan to market a license on an app program that showed great potential.

The shark sure sounds like he knows what he is talking about. Or does he.

Because we know that before licensing anything a startup manager needs to have procured a solid copyright.

Getting a copyright for a program associated with an app, website or any other computer program is no easy task regardless of whether venture capital has been secured. There is a fundamental flaw with the “shark’s” proposed business plan. He can’t market a license on a copyright the startup doesn’t own and likely can’t get.

Venture capital investors, on reality T.V. shows, and in life, don’t always know what they are talking about, and they would do well to “nota bene” that old saying, “if you have some money there will always be someone that is ready, willing and able to take it away from you.”

If you have created an innovative and useful product that you want to market then bring your plan to a bank and ask for a business loan. Don’t waste time with “venture capitalists” that are really just out to snag patentable or copyrightable ideas in order to gain a competitor advantage.

Questions VCs, Banks & Investors Ask about Copyright & Intellectual Property (IP)

The IP questions you would likely be asked by any potential investor would generate from two main sources, your business plan and the IP surrounding product that you envision marketing. Let’s take a look at some of the potential IP question areas.

1. Who owns the computer code, and is it copyrighted?

Let’s say you developed a really unique and useful web app that you want to bring to market. The first questions you will be asked will be whether or not you have secured copyrights on the code, the visual graphics and and any other content and whether you have secured or applied for a patent on you idea or format.

You can’t market the IP aspects of a product or idea you don’t own, and investors are going to be aware of this fundamental fact.

You can copyright a computer program or the associated code. The problem is that to get this copyright you will need to do a search on the code you used to figure out which part of it was a “work of original authorship” and which parts of your product was based on a reuse of code created and possibly copyrighted by somebody else.

You can only apply for a copyright on the specific code you created as an original work of authorship and that is the only portion of the code you may copyright and license to others.

You will need to take steps to get a license, or permission to use and market, all other parts of the code that comprises app’s computer program code that came from other sources that may have copyrighted their codes. This is an IP aspect where you could receive questions by a potential investor.

Once you have your own copyright and any needed permissions or licenses to use and market the code of other contributors in your final product you are “good to go.” You will also need copyrights or licenses for all the graphics and audio you used before you can move ahead to produce and market your product; investors know this and you need to know this as well.

2. Do you own the rights to all the graphics and audio used in the app?

Let’s say you want to market a product that has these really incredible graphic images and music. Investors will ask if you have secured a copyright on the images and for example, the song lyrics used in your music. Your answer can’t be that your sister made the images, and your friends created the music. You need a written assignment of copyright in both situations.

And the artist payment price must be a reasonable one for the envisioned use and reuse by the application or the investors could fear that your “sister and friends” would opt to come back later and simply terminate the assignment and file an action for infringement that could cost the enterprise dearly. Play fairly with associates and your business will in turn be treated fairly and even be promoted by them.

3. Have you applied for any patents?

There are several different types of patents that may be applied for depending on the nature of the product that your business wants to bring to market. But no matter which patent applies in your situation you can bet your life on the fact that any potential investor is going to ask you whether any patent has been applied for and or secured on your product.

Patentable subject matter under a “utility patent” includes; a process, a machine, an articles of manufacture, and a compositions of matter. Most patents are utility patents. A new and original design or ornamentation for an article of manufacture may be granted a patent under the “design patent” category. A design patent will only protect the appearance of an article and not its structure or utilitarian features.

4. Do you own your logo and trademarks?

Inquiring minds will want to know if you have a logo or trade name.

Step one, let your graphic artist know that you intend to use an image they created as a business logo, step two, get a written contract either assigning or licensing the rights to the graphic image to your business and pay the artist for his work, and finally, step three, do a trademark search to make sure nobody else is already using that image or something very close to it as their business trademark.

If nobody is already using the image then apply for a State or a federal trademark based on your graphic image logo and your business name. These are some of the IP property rights that an investor would want to see that you have secured and are able to present the written contracts and agreements to document them in your business portfolio.

If your business has no funds available then just keep using your logo and trade name as before because you may be able to claim a common law trademark arising based on your years of use in the marketplace.

Photo Credit: Copyright Locked by Irish Typepad used under CC BY-NC-ND 2.0

Photo Credit: Copyright Locked by Irish Typepad used under CC BY-NC-ND 2.0

5. Have employees and independent contractors assigned all copyright & IP rights to their work to your startup?

An investor may inquire as to whether or not any of the app code, graphic images, audio tracks or written web content was supplied by an employee or independent contractor.

If your answer is yes then you will need to produce written and signed by the employee or contractor agreements that either assign the copyright in full or license permission to use the copyrighted material in the proposed product.

If you don’t have those agreements the investor could find problems with the foundational aspects of your application for business funds. To transfer and assign copyright & IP rights from independent contractors to your startup you can use an online copyright & IP transfer service like Kunvay.

Don’t be discouraged if it seems like a lot of IP work is needed and you just want to focus on developing your product. Securing a grant or a business loan can depend on showing an investor that you have taken all the steps needed to protect their investment in your business.

All you need to do is collect in a portfolio all the written and signed assignment and licensing agreement documents, and if appropriate, the applications for a patent or trademark. That’s all you need to do to impress investor questioners with your business savvy and know-how to handily achieve an approval for your business plan.

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About Author: Christine Varad is the principal writer and editor for Varacolors Media. She earned her JD in law from New England Law and holds a BFA from Massachusetts College of Art and Design. As an artist and a lawyer she has a long standing interest in Intellectual Property law and promoting the rights and interests of writers and visual and performing artists.