Guide: Intellectual Property (IP)

 A guide to selecting the right intellectual property agreement for your challenge

Introduction

Congratulations on taking the first steps toward launching your crowdsourcing project! Selecting the appropriate intellectual property (IP) agreement for your challenge will protect your ideas and the solutions arising from your challenge and will affect the number and types of innovators participating in it.  In order to encourage maximum participation from the highest quality of talent, it is essential to set appropriate prize and IP incentives.

HeroX has four intellectual property templates.  This guide will help you select the agreement that best meets your needs.  The templates can be customized, so be sure to have your legal department review and make any necessary edits. 

The Four Templates

• Innovator Retains IP - The Innovator retains all IP rights to their technology.
• Sponsor Acquires IP - The Innovator assigns IP rights to the sponsor should they be awarded a prize.
• Shared IP - The Innovator retains all IP rights to their technology and grants the Sponsor a royalty-free, non-exclusive license. 
• Open Source IP - The technology is open source and goes into the public domain upon completion.

Innovator Retains IP 

Challenges where the Innovator Retains all IP rights are the most inviting to potential participants. If a talented individual is searching HeroX for opportunities to compete for prizes, he/she is far more likely to invest time and resources in a competition where they can keep all IP rights.

Challenges seek solutions in one of the following five categories: Ideas, Designs, Proofs-of-Concept, Prototypes, or Products. In many of the Ideas and Designs-type challenges, submissions do not contain defensible IP.  If you are launching an Ideas or Designs challenge, it makes sense to select the Innovator Retains IP template. 

Reasons to consider the Innovator Retain IP template:

• You wish to encourage the largest and most diverse range of participants
• You are requesting ideas or preliminary designs
• Your prize value is low
• You are not interested in or able to own IP (challenge sponsor is non-profit, philanthropic, or other similar type organization)

Sponsor Acquires IP 

Although there are numerous reasons why a Sponsor may wish to own the IP arising from a challenge, there are also numerous reasons that discourage this decision.  Challenges where the Sponsor is assigned the Innovator’s IP tend to have lower participation rates.  Also, the insistence on owning IP can negatively impact the Sponsor’s brand or reputation.  Other reasons that dissuade Sponsors from using this Sponsor Acquires IP template are:

• Many universities do not allow their students and staff to participate in challenges where IP rights are not conserved
• The prize purse must be considerably higher than the value of the IP in order to incentivize innovators (even $1M+ prizes often do not use this template)
• IP rights are often not defensible, especially in international situations
• Assigning IP rights to the Sponsor following the challenge is non-trivial, especially if the winner is international

Shared IP 

90% of all HeroX Challenges use the Shared IP template as a base agreement. This agreement allows Innovators to retain ownership of their IP while granting you a license to use it. 

Many Sponsors use this agreement as-is, but you and your legal department may choose to customize it.  Common modifications include: 

• Require the “royalty-free, non-exclusive licensing agreement” to be exclusive for the first 3-years after the challenge
• Pay royalties after a certain threshold of profit is attained
• Restrict exclusivity within a particular geographic area or within a certain industry

Open Source IP 

The Open Source IP template is common for software challenges only. This template requires the winning Innovator(s) to make the IP of their solution open source, often on a code repository like GitHub.

HeroX Insights

90% of all HeroX Challenges use the Shared IP template as a base agreement and modify it as necessary. We recommend that you talk with your legal department, or a trusted IP attorney, about the implications of your IP decision.  This is particularly the case if you choose to customize a template. We encourage you to always consider the perspective of the Innovator to ensure that you arrive at a mutually beneficial endpoint. In order to register for each challenge, we require Innovators to agree to the Challenge Specific Agreement. We have seen a notable difference in the size and talent-level of the Innovator community in challenges with strict versus lenient legal agreements. 

Also the IP agreements for the challenge do not have to be defining ones for your longer term relationship with an Innovator.  This agreement allows you to engage with potential Innovators and award the best solutions a prize. Following the Submission Deadline, a lot of work will need to be done, likely while still in communication with the winning Innovator(s). Most Sponsors connect with the winners and collaborate on material sourcing, manufacturing, implementation into their workflows, etc. At any point following the close of the competition, you can renegotiate the terms of your relationship with the Innovator(s) involved.

Frequently Asked Questions 

We discuss intellectual property rights with almost every client.  If you still have questions, we are always happy to talk!

• Does the average Innovator understand the difference between the 4 different IP arrangements?
  • Innovators are very keen to understand their legal rights, and as crowdsourcing goes more mainstream they are becoming increasingly sophisticated in their understanding. 
• What if an Innovator commercializes the technology without me?
  • This is a common fear among Sponsors. A lot of Sponsors want to select the Sponsor Acquires IP template for full protection.  But careful modification of the Shared IP template can assure that you maintain a competitive advantage while allowing the Innovator to benefit from applications in non-competing industries or disciplines. Additionally, if the Innovator could do this alone, s/he would likely have already done so.  Your expertise as entrepreneur, visionary, manager, leader, investor, networker, seller, or scaler complements the Inventor’s expertise, allowing your collaboration to create a product that can successfully make it to the market. A lot of work will be required following the competition, the real value comes in the execution. 

Summary

In conclusion, we know that selecting an Intellectual Property Agreement can be difficult. First and foremost, you need to protect your idea or the business you represent. Secondarily, in order to be successful and attract talented individuals to your competition, you need to creatively incentivize them. Every client's situation is unique. We encourage you to consider the option that best benefits both your immediate and longer term needs.

If you have additional questions and would like to speak with a HeroX team member directly, please reach out to us at possibilities@herox.com.