Co-authorship. Startup as an authoring project
The success of a startup is in a breakthrough idea that needs to be implemented quickly with the help of the coordinated work of a team of like-minded specialists.
What is the problem?
At the start of the project are the fundamental tasks:
- protect ideas - prevent competitors from using new technology;
- establish interaction in a team - distribute the responsibilities of each project participant, not forgetting about financial and organizational issues;
- agree on the distribution of profits from the project, providing transparent conditions for motivation.
Usually the team is clearly aware of these tasks. Problems often arise where the team inspired by the idea goes headlong into the development of the project. As a result, issues of principle are either postponed until later, or discussed in words, but are not documented. The team reasonably assumes that registering a legal entity and spending money on the development of legal documents is impractical. Exceptions occur when an investor appears in a startup who insists on the legal design of the project.
As a result, the agreements are easily violated and the new business breaks up due to misunderstanding between the team members. There are even foreign statistics: 62% of startups fail due to internal disagreements. From our own experience we see that in the Russian market the percentage is about the same.
Is there a solution?
So, the importance of fixing the agreement on paper is recognized, but it’s a pity to spend the budget on expensive legal services. What can be done to resolve issues of principle with minimal budgetary costs, but with the effect of giving the agreements legal force?
A startup is an implementation of an idea. And the implementation of an idea can always be considered as the creation of a certain object of intellectual property: either a technical solution that is protected by patent law, or a software product or scientific development protected by copyright, or, finally, a certain technology, the protection of which can be organized in know-how mode.
From the point of view of intellectual property law, we consider the project team as a team of co-authors, each of whom contributes to the creation of an intellectual product. Moreover, under the contract, the contribution itself and the reward for its successful implementation are determined in detail. Along the way, we solve the problem of determining the intellectual assets of a project and working out ways to protect them.
The beauty of the proposed solution is that even at the very start of the project a legally significant document appears without registration actions and expenses on state duties, notaries, tax trips and other “boring legal procedures” that require substantial cash injections.
Agree, is it already tempting? To finally convince you to get acquainted with this tool, I will give one more positive effect from the use of this document. If the team tries to conclude an agreement at the start and the initial participants cannot agree on the conditions BEFORE the launch, the project simply will not start and everyone will save a lot of time and nerves.
Perhaps you just can’t imagine how much questions you need to reach an agreement. Perhaps it will come as a surprise to you that the team actually does not have a common understanding of these issues. We are constantly faced with this. We begin to work with the startup team - during the negotiations, everyone understands each other in words perfectly and everyone agrees with everything. As soon as you send for approval a document that needs to be signed and executed, then disagreements and clarification of positions begin: “I didn’t mean it”, “but we didn’t agree”, “but let's change it here”, etc. .
Even if you decide to postpone the issue of legal consolidation of agreements “for later”, then it makes sense to conclude a co-authors agreement as early as possible. Either quarrel right away and take a run, or then it will be easier to draw up corporate documents on the basis of agreements already reached and described.
Can you give more details?
Of course. Typically, when drawing up a co-sponsors agreement, the following questions arise:
How many team members should an agreement be drawn up from?
If the team has more than one person. Even two participants will find something to agree on.
Who can be parties to the contract?
By law, only individuals can be authors. However, we recommend including in the contract also participants who provide financial, technical, organizational and other assistance. Legal entities may also be such participants.
Is it possible to limit competition in a contract?
Yes, you can fix the obligations of the co-authors not to develop similar results for other projects and participate in them. You can prohibit the use of the results obtained for purposes other than those specified in the contract.
Is it possible to include in the contract obligations on financing or providing property for the project (equipment, software, premises, etc.)
Not only possible, but necessary. At the same time, we advise you to indicate how these costs will be compensated from project income.
What types of participation are there in the project?
Fundamentally, there are two types of parties to the co-authors agreement. The first are creative contributors to product creation. These are persons whose mental efforts create the results of intellectual activity. These participants become authors and receive shares in the right to an intellectual property. We call them Coauthors. It is a share in the law that, at an early stage, replaces a share in an LLC or shares in an AO and is a real asset with which you can make transactions.
The second group of participants is those who provided only organizational assistance (financed, provided equipment and premises, advised on various issues, etc.).
These are optional participants, but they are usually present in the contract. In addition, the co-authors themselves often provide not only creative, but also organizational input, and this is important to consider. Participants helping with the organization (let's call them conditionally - the Organizers) do not receive a share in the right to an intellectual product, but receive the right to receive part of the income from using the intellectual asset. The co-authors also receive such a share.Thus, in a contract we usually have two types of participants and two types of rights: Co-authors (and only they) receive shares in intellectual rights, and also have a share in the distribution of income from the use of the product. Organizers receive a share only in revenue from the use of an intellectual product.
What else is important to provide in the contract?
Since on the basis of the contract we have intellectual property rights, we can use them wisely!
Change in shares depending on the duration and quality of work in the project of each participant (options)
For example, it is advisable to determine not only how the shares will be distributed at the start, but also how the share will change. Here traditional instruments for corporate relations can be used: options, vesting and cliff. If a participant works for a long time and complies with his duties, then his share does not change or even grows (due to the share of other participants or the reserve), and negligent participants lose their share (in case of poor performance of their obligations).
The order of exit of participants from the project, including mandatory, and the rules for accepting new participants
It will be good to agree on the shore in which cases a participant can leave the team of his own free will (what compensation he receives and in what order) and forcibly if he does not fulfill his obligations. It is necessary to provide a procedure for overcoming deadlocks, so as not to stall the project due to internal disagreements in the team. There should be a mechanism for coordinating decisions and resolving disputes.
Procedure for making decisions on the use and sale of a product
At the start, you need to agree on how decisions will be made on a particular type of use of the product. Life does not stand still: the conditions for implementation are changing and you need to clearly understand how the contract will change. It is very important to know who is authorized to make decisions on behalf of the team (everything is unanimous or there is a procedure for submitting proposals and voting). Therefore, it is important not only what we agreed on at the start. It is more important who and in what order can change the initial agreements and will make decisions during the implementation of the project.
At the start of the project, we have general ideas about what we are doing and how we will make money; we have a common understanding about the distribution of responsibilities and profits. However, the general idea may be forgotten or changed and turn out to be far from general. The best solution would be to fix the agreement on paper and give them legal force. This will significantly reduce the risk of disagreement and increase the chances of success of the project. Moreover, this solution does not require significant time and financial effort: even taking the contract template yourself and filling it out, you will get a real tool for solving the tasks. Good luck!
(c) Kirill Mityagin