Within the framework of a founder's claim to certain shares and intellectual property of a private company ("Company"), the District Court of Tel Aviv (Economic Division) ("Court") reviewed principles of intellectual property ownership in the event of a founder's separation from a venture
In the case at hand, a group of founders executed a founders agreement providing that the intellectual property developed by any of the founders would be owned by all of the founders ("Agreement"). Subsequently, one of the founders left the project prior to the Company's incorporation.
The Court noted that a start-up company's intellectual property is its only asset and sole basis for securing investments. Without exclusive ownership of intellectual property, a start-up would not have any value and would not be successful in raising capital.
The Court observed that even though the Agreement did not explicitly address ownership of intellectual property upon founder separation, it did address share ownership in the event of founder separation prior to incorporation. As the value of shares of a start-up company is tied to ownership of its intellectual property, the Court found it reasonable to interpret the Agreement as also governing the ownership of the intellectual property developed by the founders in the event of founder separation prior to incorporation.
As the Agreement did not specify what would happen to the intellectual property upon founder separation, the Court held that the parties' intentions were to be determined through principles of contract interpretation, such as understanding the intent of the parties, assuming fair and reasonable parties, and through completing the missing details of the contract in accordance with mechanisms provided for under Israeli contracts law. Using these techniques, the Court ruled that the intent of the parties directed that even upon separation of a founder, ownership of the intellectual property developed by such founder would remain with the Company and that the contractual provision as to joint ownership by the founders applied only to the pre-incorporation period.
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