Internet-of-Things Devices, Intellectual Property, Venture Capital, China Manufacturing, and the Art of a Clean Deal: Who Owns What?

Abstract

Much of the value of an Internet-of-Things (“IoT”) startup resides in its intellectual property. Many IoT startups use China, mainly Shenzhen, to develop, manufacture, and ship their product.

Though this strategy provides many benefits, it also presents substantial challenges. IoT entrepreneurs often fail to ask the right initial questions of their Chinese manufacturer or take the basic legal steps needed to ensure they can track, retain and verify ownership of their own IP. This situation makes investors nervous and can greatly complicate the raising of initial or subsequent rounds of capital.

At the micro-level, this article discusses the IP risks for foreign IoT startups that develop and manufacture their devices in China and offers strategic recommendations for how to manage that process to achieve a clean deal for investors and ultimately a meaningful liquidity event. At the macro-level, we highlight how intellectual property law and contract law can be leveraged to help drive the development of ecosystems in finance, entrepreneurship, and supply chain.

Keywords: Internet of Things, Intellectual Property, Venture Capital, Entrepreneurship, China, Manufacturing, Supply Chain