Protect Company IP and Trade Secrets 05 Acquirers will expect full assurance that your company owns its intellectual property. As a result of increased competition and consolidation, talent is already at a premium. Venture capitalists and companies investing in and acquiring startups conduct rigorous due diligence related to key executives, trade secrets, confidential information, noncompetition agreements, and the management of project-related data. For many start-ups, much of their value is derived from their key executives and any proprietary or trade secret information.
BEST PRACTICES:
Develop internal policies for handling confidential information, including NDAs and internal training where appropriate.
Avoid incorporating third-party IP without permission. If the due diligence process reveals unlicensed software or copying open-source code without proper attribution, it can delay or kill a deal. Require all employees and contractors sign IP assignment agreements before beginning work. This ensures the company owns what’s created on its time and dime. With regard to noncompetition agreements (in jurisdictions where such agreements are allowed), acquiring companies should review the structure of their deal and make sure that such agreements are assignable and that the restrictive covenants are enforceable. Because employees may be located in different states, a state-by- state analysis can be critical. In addition to noncompetition agreements, acquiring companies should also develop an attractive employee retention plan for key employees.
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