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Four Steps for Moonlighting Startups to Protect Their Intellectual Property

Written by Chris Daming, J.D., LL.M.

Four Steps for Moonlighting Startups to Protect Their Intellectual Property

Written by Chris Daming, J.D., LL.M.
4 min read

You just finished a hard day’s work at the office.

After commuting home and eating a quick dinner, nothing sounds better than some quality binge watching on Netflix. But you resist the urge, open up your laptop, and get to work on that side job.

Sound familiar?

For a lot of new startups, this is a typical weekday. Welcome to the world of moonlighting.

Moonlighting, or working multiple jobs, has become more and more common these days. People moonlight for lots of reasons: to supplement income, to gain skills, or to start a new business.

So why’s moonlighting important?

These days, many successful companies (like Instagram) owe their existence to moonlighting. But moonlighting is hard work, and it can be risky. Intellectual property (IP) is often one of the most valuable assets of a startup. And if you’re moonlighting, you risk losing ownership of your IP. Here are four steps to moonlight like a pro.

Step 1: Understand how intellectual property laws affect moonlighting.

Moonlighting brings up major IP concerns. So what is IP?

IP essentially covers everything that your startup creates. When most people hear IP, they think patents and inventions. This is true, but IP also covers smaller things like a company logo you designed or a special procedure you developed to work through a problem. For example, if you’re a tech startup, developer code is definitely IP.

All of this matters because moonlighting can have awful consequences. It can cost you your job if an unapproving boss finds out. Plus, investors are reluctant to get involved in a startup if they sense any IP concerns.

Perhaps worst of all, if you create things for your startup on your employer’s time or equipment, you risk losing your rights to that IP. Something as small as using a work computer to test an algorithm for your startup could wind you up in a situation like this:



(Video credit: HBO's Silicon Valley

That’s right, if you create IP while working at your day job, your old boss might own that IP. What if you use part of your employer’s IP to help create your own stuff? Same result: your boss might own it, and he could have other claims against you for improperly using “his” IP.

Ever heard of “work made for hire”?

It has a very technical legal definition, but it boils down to this: if you're an employee, any work you do for the company is “work made for hire.” And all that work is owned by the company. Nothing has to be in writing for this to take effect. (But note that if there's a written agreement, be sure to understand the scope of that agreement.)

If nothing's in writing, this issue can be tricky. The general rule here is that the work is “work made for hire”—and your boss owns the IP—if (1) it’s the kind of work you were employed to perform, (2) it happens within work hours, or (3) it’s done with the intent to serve your employer.

Something else to keep in mind here is a document called an “assignment agreement.”

Depending on the language in these agreements, your boss might own rights to all IP you create for work, regardless of if you created it during work hours or using work equipment. Some states, like California and Washington, have laws limiting the scope of assignment agreements. But remember, if IP was created on the job, employers might not even need an assignment agreement in order to own that IP. So don’t assume you’re in the clear if you never signed an assignment agreement.

Whether you’re moonlighting or not, there are serious IP concerns that every startup needs to keep in mind.

Step 2: Check for moonlighting policies at your day job.

Chances are you won’t find something nicely labeled, “Moonlighting Policy,” so it’s important to review all the employment documents you’ve signed for any language that limits your ability to moonlight. Be on the lookout for policies referencing “outside activities” or “outside employment.”  Pay particular attention to these documents:

  • offer letters and employment agreements
  • confidentiality agreements
  • intellectual property assignment agreements
  • non-compete or non-solicitation agreements
  • stock option agreements
  • non-disclosure agreements
  • employee handbooks

When you look through these documents, note any terms suggesting that IP is shared with or owned by the employer. Are there any outright bans on working a second job or starting your own business? Does your employer require you to tell them about your side hustle? Be sure to get a good handle on this paperwork.

Step 3: Moonlight Properly.

One of the first decisions you will have to make is whether to be upfront with your boss about your new startup. If there is a policy or contract that requires you to disclose your side gig, then there’s your answer. Otherwise, use your best judgment given the situation.

Next, set clear boundaries to keep your startup activities separate from your full-time job. Keep in mind the following:

  • Never work on your startup during work hours or at your work office. 
  • Don’t use your employer’s materials or equipment. That means stick to a separate  phone number and email address for your startup work. 
  • Don’t use any work IP as inspiration for your startup. If you’re with a tech company and you think your startup would benefit from borrowing some lines of code, don’t do it.

Step 4: When ready, make a clean break.

The key to moonlighting is to secure ownership of the IP you create. As early as possible, form your startup and assign all the IP to the startup.

Also, when you’re ready to part ways with your full-time job, make sure you have all work equipment and files ready to return ASAP.

We want to hear from you!

Are you in the midst of moonlighting? How’s it going? Or, if you’re a business owner, what’s your take on workers doing businesses on the side? Leave a comment below.

Topics: Intellectual Property

Published on: Dec 27, 2017 1:03:16 AM

Chris Daming, J.D., LL.M.

Written by Chris Daming, J.D., LL.M.

Chris is the founder and CEO of LegalGPS. Previously, he served in the Army (82nd Airborne), then went to law school and got his J.D. and LL.M. He practiced law and ran the Startup Legal law firm before founding LegalGPS.