United States: Intellectual Property Considerations For Autonomous Vehicle Technology Startups And Automotive Suppliers

Many automotive suppliers and OEMs have announced plans to bring autonomous vehicles (AVs), and related components, software and services to market. In almost all of these cases, the automotive suppliers and OEMs are collaborating with technology startup companies to develop the underlying hardware or software. As parties work together to develop technical solutions needed to bring AVs to market, the resulting intellectual property (IP) can become a key asset of the automotive supplier, the technology startup company or both. A failure of a party to properly protect and capture IP around its technical solutions can impede its business goals as well as delay the development and deployment of AVs.

1. What is an IP strategy?

Every technology startup and automotive supplier must have an IP strategy that is aligned with its short and long-term business goals to enable them to successfully bring AV-related systems, components, software and services to market. The owner of the IP assets resulting from a well-executed IP strategy can leverage the assets during negotiations, increase their valuation, publicly promote their innovations in marketing materials, keep out competitors, and monetize their IP by generating a royalty-based revenue stream.

The IP strategy should prescribe how and when the technology startup and automotive supplier will pursue and protect their joint or respective intellectual property in a manner that fits the business goals, and also takes into account ownership of the resulting IP. The IP strategy should support the technology startup's growth and exit strategy, while also supporting the automotive supplier's goals for creating barriers to entry. An ideal IP strategy is one that creates value, reduces risk, and is realistically achievable for both the technology startup and the automotive supplier, thereby facilitating the successful deployment of AVs to market.

2. How does the IP strategy protect proprietary competitive information?

An IP strategy and plan leverages legal tools in a systematic and repeatable manner to identify and capture a company's proprietary competitive information. The IP strategy and plan should account for any inherent challenges raised by the company's culture, expedited development and deployment roadmap, and strategic goals.

Challenges posed by the culture of an early-stage AV technology startup may revolve around the openness with which founders discuss their innovations with third parties, operating in collaborative shared workspace environments where individuals bounce their ideas off of third parties, or initial discussions when recruiting new talent or potential partners.

Even as the company moves beyond early stage, additional challenges arise from its need to make public disclosures to persuade potential customers or regulatory entities of its AV-related innovations. Common scenarios for inadvertent public disclosure of IP include a) a technology startup demonstrating a new hardware component or software algorithm to an automotive supplier; b) the automotive supplier disclosing its AV deployment plans; c) experimenting with the AV on public streets; d) discussion when raising capital; e) discussion when recruiting talent; f) publishing a white paper or thesis or presenting same at a conference; or g) selling or offering to sell a vehicle that embeds the new sensor for data collection purposes or a back-end process unbeknownst to the owner of the vehicle.

In addition to inadvertent public disclosures, companies may overlook protecting their IP around their software-related innovations, such as their Artificial Intelligence or algorithms used to enhance the AV's safety, accuracy, reliability, robustness, efficiency, or user experience.

Therefore, to provide the company with the ability to create value and reduce risk in the competitive AV field, it is paramount to establish and execute an IP strategy and plan to obtain IP protection at an early stage and before any public disclosures.

This can be difficult in practice in a fast-paced environment with high levels of collaboration between technology startups and automotive suppliers. As part of an IP strategy to protect proprietary competitive information, the company should establish a plan and process for identifying the functional features of its solution that differentiate it from the competition, and the innovations that enable such features. The company needs to identify which individuals or parties contributed to the innovation, and then determine which tools in the toolbox of IP protection (trade secret, copyright, trademark, patent, or contractual) to deploy to protect the innovation.

Upon identifying the IP tools to use to protect the innovation, the company should take action or work with outside counsel to create the IP asset. Actions may include

  • Filing a patent application to mitigate the consequences of any unintended prior disclosure, or future public disclosure;
  • Executing confidentiality or non-disclosure agreements that cover the nature of the disclosure;
  • Registering trademarks and copyrights to add value and prevent others from stealing commercially valuable marks; and
  • Ensuring that all documents are marked as confidential and physically locked, that all electronic systems are secured with adequate encryption and authentication, and that confidential information is always discussed in private.

3. How does the IP strategy account for ownership?

The ultimate goal of an IP strategy is to obtain ownership of the IP so that it can be monetized. Therefore, it is not sufficient to merely create the IP asset without also having a plan to retain the appropriate ownership or rights over the IP asset.

In the absence of any formal agreement governing ownership of IP, any IP rights generated or derived from an individual's employment or consulting relationship may inadvertently be waived or may be owned by another company. As part of an IP strategy, companies should, therefore, ensure that they take steps to ensure that they retain ownership in the IP prior to collaboration with other parties. Likewise, automotive suppliers that may not have historically collaborated with technology startups should be aware of cultural differences related to how entrepreneurs and members of technology startups operate, such as loose or non-existent non-compete clauses, and the ease and rate at which employees can switch from one technology company to another.

Failure to take steps to retain ownership of IP may prove costly to the company and may impede capital formation and product development. Recently, individuals working at a large technology company left to create their own technology startup that specialized in autonomous trucking innovations. The new technology startup was acquired by another large technology company. After the acquisition, the initial technology company that employed the individuals sued the acquiring technology company for alleged theft of IP. The acquiring technology company ultimately settled the dispute, and soon after decided to shut down its autonomous trucking plans.

To mitigate these and other risks related to IP, investors of technology startups likely will perform due diligence to determine whether any IP ownership issues exist. As part of an IP strategy, the company should take all steps necessary to transfer or assign all IP rights to the company. If the technology startup has not taken steps to protect and retain ownership of its IP, the startup may be inhibited from commercializing its innovations with other companies.

Establishing and executing a comprehensive IP strategy that allows a company to identify and protect its IP, while retaining ownership in the IP, can play a pivotal role in the success of both the automotive supplier and the technology startup. As such, automotive suppliers, OEMs, or technology startups should seek experienced counsel early on to help avoid the numerous pitfalls and challenges with IP protection and ownership. Foley & Lardner LLP is uniquely positioned to provide such counsel by leveraging its historic experience working with both large automotive suppliers and technology startups to develop and execute a customized IP strategy for an AV company.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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