Tag Archives: IP

White-Label Mobile App Users: Who Owns Them?

As mobile applications continue to gain popularity, more white-label mobile app deals are popping up. And while both the startup and the large company will certainly contract with respect to intellectual property asset ownership, an asset that may be overlooked is the ownership of the white-label mobile app’s users. Worst-case scenario, ownership of the white-label mobile app users can be insurance against the large company bailing out of the white-label deal.

Nothing New

The importance and value of a mobile app’s users isn’t novel. I’m pretty sure Alamofire, maker of Gowalla (ex-Southlake represent), recognizes this importance and values each user they acquire. And I’m also pretty confident Alamofire owns its Gowalla users. But Gowalla isn’t a white-label app. Different issues and incentives apply.

The White-Label User Ownership Wrinkle

At first glance, large company ownership of the white-label app’s users seems like common sense: the white-label app is branded as the large company’s app, so ownership of its users should flow to the large company. But depending on the terms of the white-label deal, the mobile app startup should consider staking at least a joint-ownership claim of the white-label app’s users.

In most white-label deals, the large company doesn’t want to bet their white-label app’s success on an unproven startup. Additionally, the large company has their own brand reputation at stake and most likely just isn’t used to working with small startups. Thus, the large company will push for various provisions in the white-label agreement that will allow them to terminate the agreement early (of course, the large company will not want to extend these same early-termination provisions to the startup). Furthermore, the large company is typically not willing to throw a bunch of immediate cash the startup’s way.

Early-Termination Issues

The large company will likely push for a short initial term and attempt to include various events that would each trigger an early-termination right for the large company. The startup will be held to various performance obligations and representations & warranties. Additionally, other early-termination provisions may exist in a service level agreement.

A trigger of any such early-termination provision and the startup could be given the boot…regardless of how successful the white-label deal is for the large company. Based on the white-label agreement, the large company could find it in their best interests to exercise early-termination and replace the startup with another company or in-house developers.

If a startup gets paid via a revenue share arrangement, the potential exists for the large company to exercise their early-termination rights and get their white-label app’s users free-of-charge (or worse, the IP). But even if the white-label agreement vests the startup with all IP ownership, including both the startup’s mobile app and the white-label app, the large company could still receive the free benefit of the jointly-grown user base.

The Distribution Channel

A requirement that the large company remove the white-label app from the various mobile app distribution channels will not prevent the large company from getting a free mobile-app user base. The large company could simply replace the white-label mobile app with a new mobile app via an “update” to all the existing white-label app users. Therefore, a large company should not be able to replace the white-label app, unless the startup commits some pretty serious performance-related offenses or rep & warranty breaches under the white-label agreement.


Heard of the term “starter wife?” Well, a startup could be the “starter developer” for a large company if too many large company-favorable provisions exist in the white-label mobile app agreement.

As a general practice, white-label mobile application agreements should include provisions concerning ownership of the white-label mobile application’s users. Additionally, ownership (sole or joint) of the white-label mobile app’s users can be a hedge against the large company terminating your white-label agreement in good times and bad.

You Can’t Spell Corporation Without “IP”

I watch “Shark Tank” on ABC. I hope one day they get pre-money and post-money right.

A segment on Sunday’s episode did manage to highlight a key point for startups:


In the episode, Coverplay Inc., was looking to raise about 350k from the show’s angel investors. A few investors made proposals and one particular investor offered Coverplay’s 2 founders 350k in exchange for 40% of their company. Coverplay countered with 350k in exchange for 30% of the company…and 10% of the patent. The show went to commercial and I said to my wife “Uh oh, their corporation doesn’t own the patent.”

After the break, all the investors pulled their deals off the table. Without the intellectual property, there was no business. The investors (rightfully) assumed the patent was owned by the company. In essence, Coverplay was asking for investment in something they didn’t own. (Side: This is happening often on the show. Many entrepreneurs are claiming they own the IP when they really don’t.)

Coverplay explained that Allison Costa, one of Coverplay’s founders, owned the patent. Then Allison further explained that her ex-husband also owned part of it as well. I can only assume that Costa had some type of patent license deal with Coverplay.

When starting a company involving intellectual property, you must transfer the IP to your startup. For example, if the intellectual property is developed prior to incorporation, you can transfer the IP via the founder’s stock purchase and tech transfer agreement.

7 Legal Documents for Your Tech Startup

When launching a startup, you want to make and keep your startup as valuable as possible. But in order to do that, your tech startup needs to ensure that (a) the intellectual property is owned by the startup, and (b) the co-founders who own the startup have proper incentives and rules to handle inevitable contingencies. Thus, your tech startup should have the following 7 legal documents:


File a charter with the secretary of state and get your startup incorporated. There’s nothing sexy about this document (for now), except that you authorize the amount of your corporation’s shares and set par value. Yet the charter is important because it creates the entity that will hold the IP your team is developing. Additionally, it’s difficult to make big-boy corporate maneuvers like issuing stock options and raising capital without incorporating.


Who gets to vote? How are board resolutions passed? How are officers elected? The bylaws determine the corporate governance of your startup, as they are the rules and regulations for the corporation’s internal administration and management. Startups often fail to draft bylaws, as bylaws aren’t submitted to the secretary of state. Don’t be one of these startups, unless you are 100% certain that your startup will never have any corporate governance issues. (I’m 100% certain that no one should be 100% certain of that.)

Shareholders Agreement

The shareholders agreement governs the relationship between the shareholders of the company and touches upon issues like a shareholder’s right to transfer his or her shares, rights of first refusal, redemptions upon death or disability, etc. This is another often overlooked startup document which can be invaluable in the event a co-founder leaves your startup.

Stock Purchase Agreement

A stock purchase agreement is made between each shareholder and the corporation, which regulates the transfer and sale of the corporation’s stock to the shareholder. It determines how much stock will be purchased, the price of the stock, and how the payment will be made (cash, IP, or another form or combination of consideration). A shareholder will typically make investment representations in this document, such as that he or she is acquiring the shares for investment purposes only and not for distribution.

Stock purchase agreements come in two forms: Non-restricted and Restricted. Non-restricted stock purchase are the normal stock purchase agreements: You pay for your shares, they are yours. Restricted stock purchase agreements are used when a co-founder’s shares will vest over time. I wrote a blog post about why your startup should consider vesting its stock.

Technology Assignment Agreement

The technology assignment agreement is made between the shareholder and the corporation, where the shareholder assigns (sells, transfers, conveys, etc.) intellectual property to the corporation. A typical technology assignment agreement will list the IP to be assigned to the corporation on an exhibit to the agreement, with the shareholder representing he or she is the sole owner of the IP. Additionally, the shareholder will agree to execute all necessary documents to effectuate the IP transfer (e.g. documents with the USPTO).

The technology assignment agreement is usually referred to in the stock purchase agreement, as an IP transfer to the corporation can be consideration (full or partial) for the stock purchased by the shareholder. Keep in mind that technology assignment agreements deal with IP that was created by the IP owner before the owner became a shareholder of the corporation (such as IP created by founders pre-incorporation).

Invention Assignment Agreement

While the technology transfer agreement takes care of pre-incorporation IP, the invention assignment agreement works to assign IP created by founders post-incorporation over to the corporation. The shareholder acknowledges in this agreement that all IP developed solely or jointly with the other co-founders is the property of the corporation–not the property of the individual shareholder. This document can also be used to list all “prior inventions” that relate to the startup’s business in which the shareholder wishes to retain ownership.

Other sections or clauses typically found with the invention assignment agreement are: confidential information clauses, at-will employment clauses, and arbitration agreements.

Employment Letter

An employment letter is made between the shareholder and corporation. Many startups overlook this document, but it can be useful to put the terms of each co-founder’s employment in writing. It can help set the tone and manage expectations of each co-founder.


These 7 legal documents, together or individually, won’t make your tech startup valuable. Your team creates the value. But these 7 legal documents will help ensure your tech startup retains its value and that your team’s hard work doesn’t go to waste.

You’re Nobody Till Somebody Steals Your Startup Idea

Many entrepreneurs worry that someone, whether a potential partner, a VC, or a boogeyman will steal their startup idea. If you are worried about having your startup idea “jacked,” I recommend you take a deep breath and relax a bit–your startup idea isn’t worth that much.

Paul Graham, in an essay derived from a talk at Startup School 2005 had this to say about the value of your initial startup idea:

I think people believe that coming up with ideas for startups is very hard– that it must be very hard– and so they don’t try do to it. They assume ideas are like miracles: they either pop into your head or they don’t.

I also have a theory about why people think this. They overvalue ideas. They think creating a startup is just a matter of implementing some fabulous initial idea. And since a successful startup is worth millions of dollars, a good idea is therefore a million dollar idea.

If coming up with an idea for a startup equals coming up with a million dollar idea, then of course it’s going to seem hard. Too hard to bother trying. Our instincts tell us something so valuable would not be just lying around for anyone to discover.

Actually, startup ideas are not million dollar ideas, and here’s an experiment you can try to prove it: just try to sell one. Nothing evolves faster than markets. The fact that there’s no market for startup ideas suggests there’s no demand. Which means, in the narrow sense of the word, that startup ideas are worthless.

You should still take precautionary steps to protect your idea even though Paul Graham (and I) don’t assign a lot of value to your startup idea. The best way to protect your startup idea is to keep it secret. Help prevent your startup idea from being stolen by being selective with both the amount of information you reveal and to whom you reveal such information. A nondisclosure agreement will help, but any piece of paper drafted by a lawyer like myself is only a reactionary document–it only benefits you after your idea has been stolen.

How To Handle Intellectual Property When Buying A Business

The business purchaser needs to ascertain if intellectual property rights are needed for the continued operation of the business. Intellectual property rights that are important include trademarks, copyrights, service marks, and trade names.

All of these IP rights are assignable. For example, the ownership of a copyright may be transferred in whole or in part by any means of conveyance. In addition, any of the exclusive rights included in a copyright may be transferred and owned separately. The owner of a trademark, service mark, or trade name may assign the mark or name or may license or franchise another to use the mark or name. An intellectual property assignment vests title and all right in the mark or name in the assignee, in contrast to a license or franchise that transfers only limited rights of use of the mark or name without transferring title.

Some intellectual property rights will obviously be needed to continue business operations. But it’s always a great idea to determine the intellectual property issues and obstacles during the due diligence period rather than post-close.