What To Do With Failed Startup IP?

Jaisen Mathai, a Yahoo engineer, asks a good question: What can we do with failed startup intellectual property that might help the community?

The large majority of most startups fail, and a lot of them have software, patents and other intellectual property that may be of value to the community. This IP could help those startups avoid wasting time reinventing the wheel, find creative ways to solve problems, etc. In a perfect world, the best of this property would be made available via a clearing house, or turned open source. Many founders would love to see their work live on in other projects and would be open to this.

But there’s a problem: all this intellectual property is still “property” and isowned by someone, even after a startup goes bankrupt. If the company has raised any venture capital, or has any creditors, they own the property after the bankruptcy. In a very few instances that IP is sold off to return some money to creditors. This is exactly what happened with Edgeio, for example, a company that I co-founded and which failed late last year. Most of the IP assets were sold to third parties, and the proceeds went to pay off those who were entitled to the assets.

But in most cases the founders are exhausted and just walk away, and the creditors really have no idea is the IP is worth anything or not. They also don’t have the time or inclination to try. And it is even rarer to find a case where people took the time to open source the assets. The fact that the IP usually has a limited shelf life before others simply re-create it is another reason why it usually ends up forgotten.

But I can see how this could change. Creditors and investors could agree up front, via a standard clause added to agreements, that any IP that isn’t obviously valuable on its face would be turned over to a third party for a quick analysis and determination of its value (financial and otherwise). That third party could decide to sell anything of value, keeping a percentage of the sale (and giving them an incentive to find value when it’s there), and simply release the code for anything that may be interesting but has little immediate commercial value.

That third party would need to be funded, though, and the income from asset sales probably wouldn’t cover the operating expenses. Perhaps this would be a good project for a university, or group of universities, to support. Student developers and faculty may find academic reasons to pursue it. And they would certainly be giving back to the community as well.

This may seem far fetched, but the idea of Creative Commons was just as crazy back in the day. At the very least, it would be an interesting experiment.

By the way, you can get your own Fail stamp for $20. Just click on the image above.