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I've been working (unpaid) in my off-time as an Electrical and Software Engineer to create and develop a product for a start-up company. The original idea for the product was not my idea, but everything else about it regarding engineering design and implementation have been my work. I've designed the mechanical, electrical and software components for the entire device.

Our small start up company (my title is "Chief of Engineering & Technology") is hopefully soon going to receive funding and go into production, and (of course) will hopefully be successful. The intention is that I will be placed into a full-time position with the title stated.

The question comes down to what I should be asking for with regards to compensation and IP (Intellectual Property). Does it make sense for someone in my case to ask for royalties on a product? Or do royalties only have to do with IP? And if that is the case, is any of the product my IP?

Additional Info: The only documents I have signed are an NDA, as well as an initial/interim position summary which just spelled out my duties and experience, but nothing regarding reimbursement.

The owner of the company holds the patent(s) for the idea/device.

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    You are not entitled to anything on a product you were paid to develop. Especially if it was not mentioned in any contract you signed when doing this work. Chances are you are paid as an employee to do work. The work is to create and develop a product. The product sells, and helps ensure you keep getting paid by your employee. If you have already developed the product, it is a bit too late to ask for extra compensation and IP. Chances are they already legally belong to the company (check your contract in regards to IP). – Shadowzee Sep 30 '19 at 23:26
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    You have updated the question to include you are unpaid. In what country are you working in? And what payment/reimbursement are you currently receiving (e.g. stocks? Partnership?). – Shadowzee Oct 1 '19 at 1:07
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    Why on earth are you doing unpaid work? – Kilisi Oct 1 '19 at 7:40
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    @Kilisi, sometimes it just happens. I used to write code for a start-up (my friends started) for free, but after they sassed me for working too slowly (on the weekend?! for free!? my god), I just stopped doing anything for them at all. – Catsunami Oct 1 '19 at 14:54
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    To respond to the comments regarding free work, I chose to team up/partner with the owner of the company who had the idea to help him get the company up and running with the product. Since it was so early on in the company, we didn't sign any documents explicitly stating the sharing of profits, ownership, etc. Since I haven't signed anything releasing my designs to the company, and I haven't been paid for anything, doesn't that make my work my IP? – ConcernedHobbit Oct 1 '19 at 20:06
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You are currently getting exploited.

You should negotiate right away something. The something can vary wildly:

  • Stock options (risky because dilution, but could have lots of value)

  • Royalties, based on future revenue. Safest, because revenue is easy to measure and hard to conceal.

  • Profit sharing. Usually easiest to negotiate, because the company only pays once it makes profit.

  • A salary. What happens most often. Safe, not surprise, no big payout even if company becomes a huge success.

Don't rely on colleagues/friends being trustworthy. When funding closes, if you have nothing arranged, investors will make sure you get: nothing. Legally, the board will be responsible to the investors and will be obligated to give you the very minimal amount they can.

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Normally you negotiate terms before you start working. If the owner of the company filed a patent on the idea you can be pretty sure that he regards the product in the same way a mother regards her newborn infant.

You should negotiate the terms of your employment immediately before doing any more work.

In a small company compensation is problematic because it could be years before the company becomes valuable and there are many ways for majority stock holders to freeze out minority stock holders. Usually your wages are the only compensation a typical worker will receive.

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  • You can't patent an idea. – Drago Oct 1 '19 at 11:18
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    @Drago The OP wrote that the owner of the company already has a patent for the IP in question. – Socrates Oct 1 '19 at 11:56
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    @Drago erm ... yes you can. That's precisely what patents are for: staking a claim to an idea for a novel product. There is no requirement to show that an invention will work, be manufacturable, or be of any practical use to anybody. – Time4Tea Oct 2 '19 at 12:27
  • @JoeStrazzere it's true that you can't patent an abstract idea, such as a mathematical formula; however, you can absolutely patent a concept for a novel invention, without having first made a prototype and proven that it works. – Time4Tea Oct 3 '19 at 17:10
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The owner of the company holds the patent(s) for the idea/device.

Then it is their IP, not yours, because they own the patent. Therefore, I think it is unlikely you would have any legal claim on this invention (unless you could challenge the patent somehow, but for that you'd need to consult a patent lawyer). From the sounds of it, you have worked for free to develop an idea for a product that the company owner owns the rights to.

I can only echo some of the other answers that recommend negotiating as well as you can with the owner to get a paid position, with a proper contract and benefits, if that is what you want. Otherwise, you should be able to mention it on your resume as evidence of something you have experience in, but I don't believe you will have a claim to the IP here.

Another option is that, given your knowledge of the product, if you have ideas for how it can be significantly improved, then you could possibly patent that by yourself and then license it to the company, or use it as leverage for a higher position (however, the patent application process requires $$$).

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  • If what you say is true, and I do not have any claim to the invention, do I still have claim to the prototype I have developed that is in my possession? It's all been built with parts that I have purchased myself, and all code I have written... Could I withhold it from them legally if I had to? – ConcernedHobbit Oct 4 '19 at 15:44
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    @ConcernedHobbit You might do. I wouldn't think they would be able to force you to hand over any design materials that you haven't already shared with them, unless there is some written contract that explicitly gives them ownership. However, IANAL. If you have any intention of challenging ownership of either the patent or design materials, I strongly suggest you speak to a lawyer, rather than relying on non-expert advice from the internet. I wish you the best! – Time4Tea Oct 4 '19 at 16:55
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If they did not pay you, they do not own your product. The startup can have a cease and desist letter ordering them to stop using the product. Without you being compensated, a work for hire arrangement does not exist.

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    This not true: the OP stated that the company owner owns the patent for the invention. Therefore, they do own the IP for the product. – Time4Tea Oct 2 '19 at 12:29
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    Yes, the company owns the patent, but not the product, mechanical design diagrams, or any other work after the patent, since a contract or work for hire agreement wasn't in place. They don't get to claim his free labour and products derived after his free labour as his own. And if the company used his work to patent the idea when they didn't submit any original work,, he can nullify the patent. It's possible that the OP could be declared the first inventor depending on if the company used his unpaid materials for submitting the patent. – DetriusXii Oct 2 '19 at 12:50
  • Ok, but what claim does the OP have to those things, if they shared them freely with this company, without having anything in place in writing to confirm ownership or terms of use? This is why patents are necessary in the first place - because otherwise it can be very difficult to prove who had an idea and who owns what. If the OP wants to sue or challenge the patent, then its going to come down to details like what records they kept; whether there was any legal text or copyright notice on the drawings; what the NDA says specifically. In that case, they really need to contact a lawyer. (IANAL) – Time4Tea Oct 2 '19 at 13:12
  • If the company can't show they had an engineer on their payroll, then it's going to be easy to prove that the rest of the members involved in the start up had no understanding of the materials they are claiming to own. The OP should contact a lawyer though. And without an explicit contract to transfer property, the other startup members don't get to claim IP as their own. It's the same with unlicensed software on GitHub. Without an explicit license like GPL, other organizations do not get to implicitly assume they can copy the developers' code for their own profit. – DetriusXii Oct 2 '19 at 15:39
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    It seems we agree that, if the OP has any desire to challenge the ownership of the IP, they will need to contact a lawyer. As I said, it will depend on many specific details that we are not privy to, as well as the OP's appetite for getting embroiled in a costly legal dispute. If there was nothing in writing regarding compensation for the work, I wouldn't fancy their chances. – Time4Tea Oct 2 '19 at 21:56

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