CALDERWOOD & HARKNESS LLP 600 Lexington Avenue New York, NY 10022
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Victoria Chambers, Responsible Partner Leonard Ashford, Of Counsel, Emerging Companies & Venture Capital Nina Reyes, Senior Associate, Emerging Companies & Venture Capital
FROM: Peter Vassiliev, Lead Associate, intellectual Property Wendy Schultz, Working Associate, intellectual Property
CC: Howard Quinn, Billing Partner
DATE: December 22, 2023
RE: Skybridge Fintech Ltd. — Intellectual Property Ownership & Assignment Analysis in Connection with $60,000,000 Convertible Note Bridge Financing
MATTER NO.: 1009-00001
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I. Executive Summary
This memorandum presents our analysis of the intellectual property assignment chains for Skybridge Fintech Ltd. (the "Company" or "Skybridge") in connection with the proposed $60,000,000 convertible note bridge financing (the "Bridge Financing") led by Ridgeline Ventures Fund IV, L.P. ("Ridgeline"), with participation from Beacon Hill Capital Partners, LLC, Northstar Innovation Fund II, L.P., and Halcyon Growth Equity, L.P. (collectively, the "Purchasers"). This memorandum supplements and should be read in conjunction with our intellectual Property Diligence Memorandum dated December 20, 2023 (the "IP Diligence Memo"), which addressed the broader landscape of the Company's intellectual property portfolio, including patent filings, trademark registrations, domain names, and trade secret protections.
The scope of this analysis encompasses a review of the IP assignment agreements executed by: (i) the Company's co-founders, Arjun Mehta (Chief Executive Officer) and Elena Vasquez (Chief Technology Officer); (ii) all current and former employees of the Company (approximately 310 full-time employees as of the date of this analysis, and approximately 85 former employees since incorporation); and (iii) independent contractors and consultants engaged in the development of the Company's cloud-based payments orchestration and embedded lending platform (the "Platform"). Our review has been informed by the documents and records produced by the Company's General Counsel, Priya Ramanathan, and Vice President of Corporate Development, Marcus Tillman, in response to the Due Diligence Request List dated November 13, 2023 and the Supplemental Due Diligence Request List dated December 6, 2023.
Overall Conclusion. The Company has established a generally sound IP assignment framework that is broadly consistent with market practice for a growth-stage financial technology and software-as-a-service company of its size and maturity. However, our review has identified several specific gaps and remedial items that should be addressed prior to or concurrently with the anticipated Initial Closing of the Bridge Financing on January 15, 2024, and that will be material considerations for the Company's planned Series D equity financing round, which management has indicated is anticipated for the third or fourth quarter of 2024.
Our key findings are summarized as follows:
(i) Founder Assignment Agreements. Both co-founders executed Confidential Invention Assignment and Proprietary Information Agreements ("CIIAPAs") at or around the time of the Company's incorporation in 2017. These agreements are generally comprehensive; however, a prior invention exclusion in Mr. Mehta's CIIAPA relating to a prototype payment routing algorithm developed prior to the Company's incorporation presents a scope question that warrants a confirmatory assignment or written clarification.
(ii) Legacy Employee Agreements. A cohort of approximately 28 current employees hired before mid-2019 executed an earlier form of invention assignment agreement (the "Legacy Form") that uses "agree to assign" language rather than the preferable present-tense "hereby assign" formulation. Under controlling federal patent law, this distinction may be legally significant and could create a gap in the automatic assignment of inventions. Of these 28 employees, approximately 12 are engineers or product personnel who have contributed to the development of the Company's proprietary Platform code.
(iii) Missing Employee Agreements. Three current employees, all in non-engineering roles and hired during a period of rapid expansion in the second quarter of 2021, do not have any executed invention assignment agreement on file with the Company.
(iv) Contractor Assignment Gaps. Certain independent contractor agreements executed prior to 2020 contain ambiguous or missing IP assignment provisions. Two contractors who contributed to the design and initial build-out of the Company's API integration layer operated under agreements that lack any express IP assignment clause. An additional four contractors operated under agreements that limit assignment to defined "deliverables" rather than to all IP created in connection with the engagement.
(v) Open-Source Software Intersection. The Company's use of various open-source software components, as identified in the IP Diligence Memo, requires a confirmatory cross-referencing review against contractor contribution records to ensure that copyleft-licensed code has not been incorporated into proprietary Platform components in a manner that creates both an assignment gap and a license compliance issue.
Each of these issues, together with our detailed remedial recommendations and a prioritized remediation timeline, is discussed in the sections that follow.
II. Scope and Methodology
A. Documents Reviewed
In preparing this analysis, we reviewed the following categories of documents and records, as made available to us by the Company through its General Counsel, Priya Ramanathan, and its Vice President of Corporate Development, Marcus Tillman, primarily through the Company's virtual data room (Thackeray Solutions Project "Condor") and through supplemental document productions transmitted via secure file transfer:
1. Founder CIIAPAs. Confidential Invention Assignment and Proprietary Information Agreements executed by co-founders Arjun Mehta and Elena Vasquez at or around the time of the Company's incorporation in Delaware in 2017, including all schedules and exhibits thereto (including schedules of prior inventions).
2. Standard Form Employee Agreements. The Company's standard form Confidential Information and Invention Assignment Agreement (the "Standard CIIAA"), in its current version adopted in approximately mid-2019, as well as the prior version of the employee invention assignment agreement (the "Legacy Form") used from the Company's inception through approximately mid-2019.
3. Individual Employee CIIAAs. Individual CIIAPAs, CIIAAs, or equivalent invention assignment agreements for all current employees (approximately 310 full-time equivalents), to the extent available in the Company's human resources records. These records were produced by the Company's Vice President of People Operations and were cross-referenced against the Company's current employee roster as of December 1, 2023.
4. Independent Contractor and Consulting Agreements. All independent contractor agreements, consulting agreements, master services agreements, and related statements of work, amendments, and change orders for contractors and consulting firms engaged by the Company in software development, platform engineering, data science, data engineering, user interface design, and related technical roles. This included both the Company's current standard form of Independent Contractor Agreement (adopted circa 2020) and earlier non-standard forms.
5. Offer Letters and Employment Agreements. Offer letters and employment agreements for key personnel, including all members of the Company's executive team, engineering leadership, and product leadership, to the extent such agreements contain provisions relating to intellectual property ownership, invention assignment, or confidentiality.
6. Employee Handbook. The Company's current Employee Handbook (last revised March 2023), with particular focus on provisions relating to intellectual property ownership, confidentiality, acceptable use of Company technology resources, and obligations upon termination of employment.
7. Diligence Request List Responses. All documents, records, and written responses provided by Ms. Ramanathan and Mr. Tillman in response to the Due Diligence Request List dated November 13, 2023 (items 4.1 through 4.18, relating to intellectual property matters) and the Supplemental Due Diligence Request List dated December 6, 2023 (items S-2.1 through S-2.9, relating to additional contractor agreements and employee agreement status).
8. Equity Incentive Plan Documents. Stock option agreements and restricted stock unit award agreements under the Company's 2017 Equity Incentive Plan, as amended, to the extent such agreements contain cross-references to or conditions regarding the execution of invention assignment agreements as a condition to the vesting or exercise of equity awards.
9. Corporate Charter Documents. The Company's Amended and Restated Certificate of Incorporation (Delaware Secretary of State File Number 6384291), bylaws, and related corporate governance documents, to the extent relevant to provisions governing the ownership, assignment, or licensing of intellectual property created by officers, directors, or employees of the Company.
10. Miscellaneous. Such other documents and records as were identified during our review as potentially relevant to the IP assignment chain analysis, including internal Company memoranda and email correspondence provided by Ms. Ramanathan concerning the Company's historical practices for onboarding employees and contractors with respect to invention assignment agreements.
We note that our review has been based on the documents and information provided to us by the Company and its representatives. We have not independently verified the completeness of the Company's records, and our analysis is necessarily limited to the documents that were made available. To the extent that additional agreements or records are identified that were not included in the data room or supplemental productions, the conclusions set forth herein may require revision.
B. Analytical Framework
Our analysis has been conducted under the following legal and regulatory framework, which we consider to be applicable to the Company's IP assignment arrangements given the Company's Delaware incorporation, the geographic distribution of its workforce, and the nature of its intellectual property:
1. Delaware Law Governing Assignment of Inventions and Works-for-Hire. As a Delaware corporation, the Company's contractual arrangements with employees and contractors are generally governed by the law specified in the applicable agreement. The Company's standard form agreements specify Delaware law as the governing law. Delaware does not have a statute restricting employer invention assignment agreements (unlike California and several other states), and accordingly Delaware law is generally permissive with respect to the scope of invention assignment clauses.
2. Federal Copyright Law — Work-for-Hire Doctrine. Under 17 U.S.C. § 101, a "work made for hire" is either (a) a work prepared by an employee within the scope of employment, or (b) a work specially ordered or commissioned for use in one of nine enumerated categories, provided the parties expressly agree in a signed written instrument that the work shall be considered a work made for hire. The work-for-hire doctrine is particularly significant with respect to independent contractors, as works created by contractors do not qualify as works made for hire unless both the statutory category and written agreement requirements are satisfied. Even where the work-for-hire doctrine does not apply, copyright ownership may be transferred by written assignment.
3. Federal Patent Law — Assignment Requirements. Under 35 U.S.C. § 261, patent rights may be assigned by an instrument in writing. The Supreme Court's decision in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., 563 U.S. 776 (2011), underscored the distinction between a present-tense assignment ("hereby assign") and a promise to assign in the future ("agree to assign"), holding that the latter constitutes only a contractual obligation to execute a future assignment and does not, standing alone, effect an immediate transfer of rights. This distinction is central to several of the issues identified in this memorandum.
4. Federal Defend Trade Secrets Act. The Defend Trade Secrets Act of 2016 ("DTSA"), 18 U.S.C. § 1836 et seq., provides a federal civil cause of action for trade secret misappropriation. Importantly, 18 U.S.C. § 1833(b) provides whistleblower immunity for individuals who disclose trade secrets in confidence to government officials or attorneys for the purpose of reporting a suspected violation of law. Under 18 U.S.C. § 1833(b)(3)(A), an employer must provide notice of this immunity in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. Failure to provide such notice does not create liability for the employer but limits the employer's ability to recover exemplary damages or attorneys' fees in a DTSA action against the individual who was not provided with the notice.
5. State-Specific Employee Invention Statutes. Several states, including California, Washington, Illinois, Minnesota, North Carolina, and others, have enacted statutes that limit the scope of employee invention assignment agreements. Most significantly for the Company, California Labor Code §§ 2870–2872 provides that an employer may not require an employee to assign inventions developed entirely on the employee's own time, without using the employer's equipment, supplies, facilities, or trade secret information, and that do not relate to the employer's business or anticipated business. The Company has a significant employee presence in California (approximately 65 employees are based in the Company's San Francisco office), and the Company's Standard CIIAA includes a California-specific carve-out and notice consistent with California Labor Code § 2872.
6. Industry Best Practices. In addition to the foregoing legal requirements, we have assessed the Company's IP assignment framework against industry best practices for venture-backed SaaS and fintech companies at a comparable stage of growth. These best practices include, among other things, the use of present-tense assignment language, comprehensive work-for-hire designations, broad definitions of assigned intellectual property, inclusion of DTSA whistleblower immunity notices, and prompt execution of assignment agreements at the time of hire or engagement.
III. Founder Assignment Agreements
The assignment of intellectual property from the Company's co-founders is of critical importance to the integrity of the Company's IP ownership chain, as the founders were directly responsible for the conception and early development of the core technology underlying the Platform. We have reviewed the CIIAPAs executed by each co-founder at or around the time of the Company's Delaware incorporation in 2017, and our analysis is set forth below.
A. Arjun Mehta — Chief Executive Officer & Co-Founder
Mr. Mehta executed a Confidential Invention Assignment and Proprietary Information Agreement with the Company on or about September 12, 2017, coincident with the Company's formation. The agreement is comprehensive in scope and includes the following material provisions:
• An assignment to the Company of "all right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements, designs, discoveries, ideas, trademarks, and trade secrets, whether or not patentable or registrable under copyright or similar laws," that are (a) conceived, developed, or reduced to practice by Mr. Mehta, either solely or jointly with others, during the period of his employment with the Company, (b) related to the Company's business or the Company's actual or demonstrably anticipated research or development, or (c) developed using any of the Company's equipment, supplies, facilities, or trade secret information.
• A schedule of prior inventions (Schedule A), on which Mr. Mehta listed one prior invention: a "prototype payment routing algorithm and associated software code" that Mr. Mehta developed prior to the Company's incorporation, described as "a prototype algorithm for multi-network payment routing optimization, developed independently by A. Mehta in 2016–2017."
• A covenant to disclose all inventions to the Company and to execute all documents and take all actions necessary to perfect the Company's ownership of assigned intellectual property.
• A power of attorney in favor of the Company to execute patent applications, copyright registrations, and other IP filings on Mr. Mehta's behalf in the event that he is unable or unwilling to do so.
• A non-competition covenant restricting Mr. Mehta from engaging in competing activities for a period of twelve (12) months following the termination of his employment.
• A non-solicitation covenant restricting Mr. Mehta from soliciting Company employees, contractors, or customers for a period of eighteen (18) months following the termination of his employment.
• Perpetual confidentiality obligations with respect to Company confidential information and trade secrets.
Analysis. The Mehta CIIAPA is generally well-drafted and consistent with market practice for a co-founder at the time of a company's formation. However, the listing of the prototype payment routing algorithm on Schedule A presents a specific area of concern that warrants further attention.
The purpose of the Schedule A prior invention exclusion is to carve out from the scope of the assignment any pre-existing intellectual property that the employee or founder developed independently prior to joining the company and that the employee or founder wishes to retain as personal property. In Mr. Mehta's case, the excluded prior invention — the prototype payment routing algorithm — is functionally related to the Company's core payment orchestration technology. Based on our discussions with Ms. Ramanathan and our review of the Company's technical documentation, we understand that elements of Mr. Mehta's prototype payment routing algorithm may have been incorporated into, or served as the basis for, the Company's proprietary payments orchestration engine, which is a foundational component of the Platform.
While the CIIAPA assignment clause is drafted broadly to capture "developments, concepts, [and] improvements" conceived or developed during Mr. Mehta's employment, the Schedule A exclusion creates an ambiguity as to whether derivative works, enhancements, and improvements built upon the excluded prior invention have been fully and irrevocably assigned to the Company. Specifically, if the prior invention was incorporated into the Company's orchestration engine, there is a question as to whether Mr. Mehta retains any residual ownership interest in the original prototype, and whether such residual interest could encumber the Company's ownership of the derivative or enhanced version.
We note that the practical risk here is mitigated by Mr. Mehta's status as the Company's CEO, his continued employment and alignment of interests, and his presumptive intent to vest full ownership in the Company. Nevertheless, for the purposes of clean IP chain of title — which is essential both for the current Bridge Financing and for the anticipated Series D round — we recommend the following remedial action:
Remedial Recommendation: The Company should obtain from Mr. Mehta either (a) a confirmatory assignment agreement expressly assigning to the Company all right, title, and interest in the prototype payment routing algorithm and all derivative works, enhancements, and improvements based thereon, or (b) a written confirmation (in the form of a letter or certificate) acknowledging that all derivative works and enhancements based on the prior invention have been fully assigned to the Company under the existing CIIAPA and that Mr. Mehta does not claim any residual ownership interest. We recommend option (a) as the more definitive approach. This should be completed prior to or concurrently with the Initial Closing of the Bridge Financing.
B. Elena Vasquez — Chief Technology Officer & Co-Founder
Ms. Vasquez executed a Confidential Invention Assignment and Proprietary Information Agreement with the Company on or about September 12, 2017, on substantially the same terms as Mr. Mehta's CIIAPA. The agreement includes the following notable features:
• A comprehensive assignment of all intellectual property to the Company, using language substantially identical to the assignment clause in Mr. Mehta's CIIAPA.
• A Schedule A listing of prior inventions on which Ms. Vasquez indicated "None" — that is, Ms. Vasquez did not exclude any prior inventions from the scope of the assignment.
• A work-for-hire designation for copyrightable works, providing that all original works of authorship created by Ms. Vasquez within the scope of her employment shall be considered "works made for hire" as defined under 17 U.S.C. § 101, and that to the extent any such work is not deemed a work made for hire, Ms. Vasquez irrevocably assigns all right, title, and interest in such work to the Company.
• Non-competition, non-solicitation, and perpetual confidentiality provisions substantially identical to those in Mr. Mehta's agreement.
Analysis. Ms. Vasquez's CIIAPA is comprehensive and does not present material gaps. The absence of any prior invention exclusion on Schedule A eliminates the type of scope ambiguity present in Mr. Mehta's agreement. The inclusion of a work-for-hire designation for copyrightable works is particularly appropriate given Ms. Vasquez's role as the lead architect of the Platform's software and her direct involvement in the creation of substantial copyrightable code.
Additional Observations Regarding Both Founder Agreements.
Both founder CIIAPAs are governed by Delaware law, which is appropriate given the Company's Delaware incorporation and consistent with the governing law provisions in the Company's other material agreements. Both agreements include the requisite whistleblower immunity notice under 18 U.S.C. § 1833(b) of the Defend Trade Secrets Act. While both agreements were executed in September 2017 and the DTSA was enacted in May 2016, the inclusion of the DTSA notice in the founder agreements reflects a commendable degree of attention to the then-recently-enacted statutory requirement and suggests that the Company received competent legal advice at the time of its formation with respect to these provisions.
IV. Employee Assignment Agreements
A. Current Standard Form Agreement
The Company adopted its current form of Confidential Information and Invention Assignment Agreement (the "Standard CIIAA") in approximately mid-2019. Based on our review, the Standard CIIAA was prepared by the Company's then-outside counsel and reflects a comprehensive approach to employee invention assignment that is consistent with prevailing market practice for growth-stage fintech and SaaS companies. The Standard CIIAA includes the following material provisions:
(i) A present-tense assignment of all inventions and works of authorship, using "hereby irrevocably assign" language that effects an immediate transfer of rights at the time of creation, rather than merely obligating the employee to execute a future assignment. This formulation is critical under Stanford v. Roche, 563 U.S. 776 (2011), and related case law, as discussed further in Section IV.B below.
(ii) A work-for-hire designation for all copyrightable works created by the employee within the scope of employment, with a belt-and-suspenders assignment of copyright to the Company to the extent that any such work is determined not to qualify as a work made for hire under 17 U.S.C. § 101.
(iii) An obligation to disclose all inventions, whether or not the employee believes such inventions to be within the scope of the assignment, to enable the Company to make a determination as to ownership.
(iv) An irrevocable power of attorney in favor of the Company to execute patent applications, copyright registrations, and other IP filings on the employee's behalf, coupled with a covenant to cooperate in the prosecution and maintenance of any IP rights assigned to the Company.
(v) An obligation to return all materials — including documents, files, electronic media, source code, and any other tangible or intangible materials containing Company confidential information or assigned IP — upon the termination of employment.
(vi) The requisite DTSA whistleblower immunity notice under 18 U.S.C. § 1833(b), informing the employee of the immunity provisions applicable to the disclosure of trade secrets in confidence to government officials or attorneys for the purpose of reporting suspected violations of law.
(vii) Perpetual confidentiality obligations with respect to Company confidential information and trade secrets, surviving the termination of the employment relationship.
The Standard CIIAA is governed by Delaware law, with a specific carve-out for employees located in the State of California. For California-based employees, the Standard CIIAA includes a notice consistent with California Labor Code § 2872, which advises the employee that the agreement does not apply to inventions that qualify for exclusion under California Labor Code § 2870 — namely, inventions developed entirely on the employee's own time, without use of Company equipment, supplies, facilities, or trade secret information, and that do not relate to the Company's business or actual or demonstrably anticipated research or development. This California-specific carve-out is both legally required and appropriately implemented in the current form.
Analysis. The current Standard CIIAA is well-drafted and consistent with market practice for a growth-stage fintech/SaaS company. We have no material concerns with the substance of the current form and consider it to be a sound foundation for the Company's IP assignment framework on a going-forward basis.
B. Pre-2019 Employee Agreements — The Legacy Form
Prior to the adoption of the Standard CIIAA in mid-2019, the Company used an earlier form of invention assignment agreement (the "Legacy Form") for all employees hired between the Company's incorporation in 2017 and approximately mid-2019. We have reviewed the Legacy Form and identified several significant deficiencies relative to the current Standard CIIAA and to current best practices.
The Legacy Form includes an assignment clause, but it differs from the Standard CIIAA in the following material respects:
(i) "Agree to Assign" Language. The Legacy Form uses the formulation "Employee agrees to assign to the Company all right, title, and interest in any inventions..." rather than the present-tense "Employee hereby irrevocably assigns..." This distinction is legally significant. As the Supreme Court held in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., 563 U.S. 776 (2011), an "agree to assign" clause constitutes a contractual promise to assign in the future and does not, by itself, effect an immediate vesting of rights in the employer. Under this holding, the employee retains initial ownership of the invention at the time of its creation, and the employer's rights depend on the subsequent execution of a written assignment instrument. If the employee fails to execute such an assignment, the employer's remedy is a breach of contract claim to compel assignment, rather than a claim of existing ownership. This creates a potential gap in the Company's chain of title for inventions and works of authorship created by Legacy Form employees who have not subsequently executed a confirmatory assignment.
(ii) Absence of Work-for-Hire Designation. The Legacy Form does not contain a work-for-hire designation for copyrightable works. While works created by employees within the scope of their employment generally qualify as works made for hire under the first prong of 17 U.S.C. § 101 (which does not require a written agreement), the absence of an express work-for-hire designation eliminates a useful belt-and-suspenders protection and may create ambiguity in cases where the scope of employment is unclear.
(iii) Absence of DTSA Whistleblower Immunity Notice. The Legacy Form does not include the whistleblower immunity notice required by 18 U.S.C. § 1833(b)(3)(A). As discussed further in Section VII of this memorandum, this deficiency does not create an IP ownership gap but may limit the Company's remedies in a DTSA action against an individual who signed the Legacy Form.
Affected Personnel. Based on our cross-referencing of the Company's human resources records against the employee roster as of December 1, 2023, we have identified that approximately 28 current employees were hired before mid-2019 and executed the Legacy Form. These 28 individuals have not, to our knowledge, subsequently executed the Standard CIIAA or any other updated invention assignment agreement. Of these 28 employees, approximately 12 are currently in engineering or product roles and have contributed to the development of the Company's proprietary Platform code. The remaining 16 are in non-technical roles (operations, finance, human resources, and general administration).
Analysis. The use of "agree to assign" language in the Legacy Form, rather than a present-tense "hereby assign" formulation, creates a potential gap in the Company's IP assignment chain that is most significant with respect to the 12 engineering and product contributors. For patent-eligible inventions created by these employees, the Company may hold only a contractual right to receive an assignment rather than an existing ownership interest. While the Company could enforce this contractual right through litigation if necessary, the gap in the assignment chain presents a risk that should be remediated prior to the Bridge Financing closing (or, at minimum, on an expedited post-closing basis) and must be fully resolved before the planned Series D round.
Remedial Recommendation: The Company should obtain executed confirmatory assignment agreements from all 28 Legacy Form employees, using either (a) the current Standard CIIAA or (b) a tailored confirmatory assignment instrument that includes a present-tense assignment of all inventions and works of authorship created during the employee's tenure, a work-for-hire designation, and the DTSA whistleblower immunity notice. Priority should be given to the 12 engineering and product contributors. We recommend that the Company offer appropriate consideration for the execution of these confirmatory agreements — while pre-existing employment is generally sufficient consideration for an invention assignment agreement entered into at the time of hire, confirmatory agreements executed mid-employment may require nominal additional consideration (such as a one-time bonus payment or additional equity grant) to ensure enforceability, particularly in jurisdictions that require fresh consideration for modifications to at-will employment terms. We are available to prepare a form of confirmatory assignment agreement for the Company's use.
C. Missing Agreements
Our review of the Company's human resources records has revealed that three (3) current employees do not have any executed invention assignment agreement — whether the Standard CIIAA or the Legacy Form — on file with the Company. These three individuals were all hired during a period of rapid hiring in the second quarter of 2021, which coincided with the Company's Series C financing round that closed in July 2021 and the associated expansion of the Company's headcount. Based on our discussions with Ms. Ramanathan, it appears that the failure to obtain executed agreements from these individuals was an administrative oversight during a period of accelerated onboarding.
The three affected employees are in the following roles:
• Employee A: Senior Marketing Manager (hired April 2021)
• Employee B: Business Development Associate (hired May 2021)
• Employee C: Marketing Operations Specialist (hired June 2021)
All three employees are in non-engineering roles. Their direct contribution to the Company's proprietary technology is believed to be minimal based on their job functions and reporting relationships. However, these individuals have had access to Company confidential business information and trade secrets, including customer data, pricing strategies, go-to-market plans, and competitive intelligence, by virtue of their marketing and business development responsibilities.
Analysis. The absence of any executed invention assignment agreement from these three employees creates a gap in the Company's IP and confidentiality protections with respect to these individuals. While the Company's Employee Handbook includes general provisions regarding intellectual property ownership and confidentiality, handbook provisions are generally considered less enforceable than individually executed agreements, and the handbook does not constitute a substitute for a signed invention assignment agreement. Additionally, the absence of a signed agreement means that the DTSA whistleblower immunity notice has not been provided to these individuals in the contractually required manner.
From a practical standpoint, the risk associated with these three missing agreements is assessed as low to moderate, given the non-engineering nature of the employees' roles and their limited direct involvement in the creation of proprietary technology. However, the absence of any agreement creates unnecessary exposure, particularly with respect to confidentiality obligations and the Company's ability to enforce trade secret protections against these individuals in the event of their departure.
Remedial Recommendation: The Company should obtain executed Standard CIIAAs from all three of these employees immediately, and in any event prior to the Initial Closing of the Bridge Financing. Given that these employees are currently employed by the Company, the execution of the Standard CIIAA can be presented as a routine administrative matter to bring their records into compliance with Company policy. As with the Legacy Form employees, the Company should consider providing nominal additional consideration to support enforceability.
D. Former Employees
Approximately 85 individuals have departed the Company's employment since its founding in 2017. These departures include voluntary resignations, terminations, and position eliminations across all functional areas.
Based on our review of the Company's records, all former employees who were hired after mid-2019 — the date on which the Standard CIIAA was adopted — executed the Standard CIIAA at the time of hire. For these individuals, the present-tense assignment language in the Standard CIIAA should have effected an automatic assignment of all inventions and works of authorship at the time of their creation, and the Company's ownership interest should survive the termination of the employment relationship.
For former employees who were hired before mid-2019, only the Legacy Form was in place at the time of their hiring. Approximately 30 former employees fall into this category. Of these, approximately 8 were engineers who contributed to the early-stage development of the Platform, including foundational elements of the platform architecture, payment processing logic, and data infrastructure.
Analysis. The "agree to assign" deficiency in the Legacy Form, as discussed in Section IV.B above, is of particular concern with respect to former engineers who are no longer employed by the Company and who therefore cannot be reached through ordinary employment channels for the purpose of executing confirmatory assignments. For these individuals, the Company's contractual right to receive an assignment of inventions may be enforceable in a breach of contract action, but the Company does not hold a perfected ownership interest in the absence of a confirmatory assignment instrument.
The practical risk associated with these former employees is mitigated by several factors: (a) the Legacy Form, while imperfect, does establish a clear contractual obligation to assign, which provides the Company with a viable legal claim to ownership; (b) many of the contributions of early-stage engineers may have been substantially modified, refactored, or replaced in subsequent Platform iterations, potentially reducing the materiality of any residual ownership claim; and (c) the former employees' awareness of their contractual obligations may serve as a practical deterrent to any assertion of ownership rights.
Nevertheless, the gap should be addressed to the extent feasible, particularly with respect to the 8 former engineers whose contributions may have included foundational intellectual property.
Remedial Recommendation: The Company should make commercially reasonable efforts to contact the 8 former engineering employees and obtain executed confirmatory assignment agreements. We recommend that the Company offer reasonable consideration (such as a modest cash payment) in exchange for the execution of a confirmatory assignment. If any of these former employees cannot be located or refuse to execute a confirmatory assignment, the Company should: (a) document the specific contributions of each individual, working with the Company's engineering leadership to identify the code, inventions, or other IP attributable to each person; (b) assess whether the contributed code remains in the current Platform codebase or has been substantially replaced; and (c) evaluate the materiality of any unassigned IP to the Company's business. The Legacy Form gap and the status of remediation efforts should be disclosed in the Company Disclosure Schedule delivered in connection with the Note Purchase Agreement.
V. Independent Contractor and Consultant Agreements
A. Overview
Since its incorporation in 2017, the Company has engaged approximately 45 independent contractors and consulting firms across a range of functions. Of these 45 engagements, approximately 18 involved contractors or firms engaged in software development, data engineering, platform architecture, user interface and user experience design, or other activities directly related to the creation of the Company's proprietary technology and intellectual property. The remaining 27 engagements involved contractors in non-technical roles such as marketing, public relations, accounting, and legal advisory services; these non-technical engagements are not the focus of this analysis, as the contractors' contributions in these roles are not expected to include the creation of proprietary technology or patentable inventions.
The Company's current standard form of Independent Contractor Agreement, adopted in approximately 2020, includes a comprehensive IP assignment clause with a present-tense assignment of all inventions and works of authorship created by the contractor in connection with the engagement, a work-for-hire designation for copyrightable works (to the extent applicable), and robust confidentiality provisions. The current form also includes the DTSA whistleblower immunity notice. We have reviewed the current standard form and consider it to be well-drafted and consistent with market practice.
Our concerns relate to engagements that predated the adoption of the current standard form, as discussed below.
B. Identified Gaps
Pre-2020 Contractors in Development Roles
Six (6) contractors engaged between 2017 and 2020 were engaged in software development, data engineering, or platform design activities and were operating under agreements that predate the Company's current standard form. Our review has identified the following issues with these engagements:
Contractors Without Express IP Assignment Clauses (2 Contractors).
Two of the six pre-2020 contractors operated under agreements that lack any express provision assigning intellectual property created during the engagement to the Company. These agreements are brief, informal engagement letters that specify the scope of work, compensation, and project timelines but do not address intellectual property ownership.
Based on our review of the Company's records, these two contractors contributed to the design and initial build-out of the Company's API integration layer — a software component that enables the Platform to interface with third-party payment processors, banking APIs, and data providers. The API integration layer was initially developed in 2018 and has been subsequently enhanced and modified by Company employees, but foundational elements of the architecture and certain code modules attributable to these contractors remain part of the current Platform codebase.
Analysis. The absence of an express IP assignment clause in these agreements is a significant gap. Under federal copyright law, works created by independent contractors are not automatically "works made for hire" under 17 U.S.C. § 101 unless (a) the work falls within one of the nine enumerated statutory categories (contribution to a collective work, part of a motion picture or other audiovisual work, translation, supplementary work, compilation, instructional text, test, answer material for a test, or atlas), and (b) the parties expressly agree in a signed written instrument that the work shall be considered a work made for hire. Software code does not fall within any of the enumerated categories, and therefore software created by an independent contractor cannot be a "work made for hire" regardless of any contractual designation. In the absence of an express written assignment, the contractor retains copyright ownership of the code they created.
For patent-eligible inventions, the default rule is that the inventor owns the patent rights unless they have assigned those rights in writing. Without an express assignment clause, these two contractors may have retained patent rights in any patentable inventions they conceived or reduced to practice during their engagement.
The Company may have certain equitable arguments available — including implied license theory, shop rights doctrine (if the contractors' relationship could be characterized as quasi-employment), and equitable assignment based on the parties' course of dealing and reasonable expectations — but these theories are fact-dependent, uncertain in their application, and would not provide the clean chain of title necessary for a venture financing.
The risk level associated with these two contractors is assessed as high given the foundational nature of the API integration layer and its continued presence in the current Platform architecture.
Remedial Recommendation: The Company should promptly contact both contractors and seek the execution of retroactive assignment agreements, under which each contractor would assign to the Company all right, title, and interest in the intellectual property created during their engagement. We recommend that the Company offer appropriate monetary consideration for the execution of these assignments, as there is no pre-existing contractual obligation to assign. If either contractor cannot be located or refuses to execute an assignment, the Company should: (a) conduct a detailed technical assessment of the specific code and other IP attributable to the contractor; (b) evaluate whether the relevant code can be re-written or replaced by Company employees without reliance on the contractor's original work; and (c) assess the commercial and litigation risk of proceeding without a clean assignment. Given the high priority of this issue, we recommend that initial outreach to these contractors be commenced immediately and that the Company's counsel be prepared to negotiate assignment terms on an expedited basis.
Contractors With "Deliverables-Only" Assignment Clauses (4 Contractors).
Four additional pre-2020 contractors operated under agreements that include an IP assignment clause, but the scope of the assignment is limited to defined "deliverables" — i.e., the specific work products described in the applicable statement of work — rather than to all IP created in connection with the engagement. This limitation creates a potential gap with respect to ancillary intellectual property that may have been created by the contractor during the course of the engagement but that does not fall within the definition of a "deliverable." Such ancillary IP could include, among other things:
• Software tools, scripts, or utilities developed by the contractor to facilitate the creation of the deliverables;
• Proprietary libraries, frameworks, or code modules that the contractor developed during the engagement and incorporated into the deliverables;
• Design methodologies, algorithms, or data models that the contractor conceived during the engagement; and
• Documentation, technical specifications, and architectural plans that were not expressly identified as deliverables.
If any such ancillary IP was incorporated into the Company's Platform, the contractor may retain ownership of that IP, and the Company's rights would be limited to an implied license to use the IP as part of the deliverables.
Risk Assessment. The risk associated with the deliverables-only assignment limitation is assessed as moderate. While the limitation creates a theoretical gap, the practical significance depends on whether any material ancillary IP was in fact created and incorporated into the Platform. We understand from discussions with the Company's engineering leadership that the work performed by these four contractors was primarily task-specific and that the deliverables definitions in the applicable statements of work were generally descriptive of the contractors' actual output. However, without a more detailed technical review, we cannot conclusively determine whether material ancillary IP exists outside the scope of the assigned deliverables.
Remedial Recommendation: The Company should seek confirmatory assignments from these four contractors, broadening the scope of the assignment to encompass all IP created in connection with their respective engagements. In addition, the Company should document the scope of each contractor's contributions, working with the Company's engineering team to identify the specific code, designs, and other work product attributable to each contractor, and to assess whether any material IP falls outside the scope of the deliverables as defined in the applicable agreements. This remediation can be addressed on a medium-term timeline, as the risk is less acute than the two contractors without any assignment clauses.
C. Offshore Development Team
From approximately 2018 to 2020, the Company engaged a supplemental engineering team through Pinnacle Software Solutions Ltd. ("Pinnacle"), an offshore software development firm based in Hyderabad, India. The engagement was structured under a master services agreement (the "Pinnacle MSA") with multiple statements of work covering various development workstreams.
The Pinnacle MSA contains an IP assignment clause providing that all intellectual property created by Pinnacle and its personnel in connection with the engagement shall be the exclusive property of the Company. However, the Pinnacle MSA is governed by Indian law (specifically, the laws of the State of Telangana and applicable Indian federal law), and the enforceability of the assignment may be subject to the provisions of the Indian Copyright Act, 1957 and the Indian Patent Act, 1970, rather than U.S. law. While Indian law generally permits the assignment of copyright and patent rights by written agreement, there are procedural and substantive differences that could affect the enforceability of the assignment, including requirements relating to the registration of copyright assignments and the treatment of moral rights under Indian copyright law.
Based on our review of the Company's records and discussions with the engineering team, the scope of Pinnacle's contributions included backend data processing modules — specifically, components related to data normalization, transaction reconciliation, and batch processing workflows. We understand that certain of these modules remain in the current Platform codebase, although the Company's engineering team has indicated that significant portions of Pinnacle's code have been refactored or replaced in subsequent development cycles.
Risk Assessment. The risk associated with the Pinnacle engagement is assessed as moderate. The Pinnacle MSA does contain an IP assignment clause, and there is no dispute between the parties as to the intent of the assignment. However, the governing law provision introduces uncertainty as to the enforceability of the assignment under the legal standards applicable in India, and the cross-border nature of the engagement complicates the Company's ability to enforce its ownership rights in the event of a dispute.
Remedial Recommendation: The Company should contact Pinnacle and seek the execution of a confirmatory assignment agreement governed by Delaware law and/or U.S. federal intellectual property law, expressly assigning to the Company all right, title, and interest in the IP created under the Pinnacle MSA and all related statements of work. In the alternative, if Pinnacle is unwilling or unable to execute a confirmatory assignment, the Company should conduct a technical assessment to determine the extent to which Pinnacle's contributed code remains in the current Platform codebase and whether the remaining code can be isolated, replaced, or independently recreated by Company engineers.
VI. Open-Source Software Considerations
The IP Diligence Memo dated December 20, 2023 identified the Company's use of various open-source software components in the Platform, including components subject to permissive licenses (e.g., MIT License, Apache License 2.0, BSD licenses) and components subject to copyleft licenses (e.g., GNU General Public License (GPL), GNU Lesser General Public License (LGPL), and GNU Affero General Public License (AGPL)). The open-source analysis is addressed in detail in the IP Diligence Memo and is not repeated here. However, there is an important intersection between the open-source analysis and the IP assignment chain analysis that warrants discussion in this memorandum.
Assignment Analysis Intersection. The IP assignment gaps identified in Section V above with respect to the six pre-2020 contractors raise the possibility that contractor-contributed code may incorporate or be dependent upon open-source libraries subject to copyleft licenses. Copyleft licenses — particularly the GPL and AGPL — impose "viral" conditions that require any derivative work incorporating copyleft-licensed code to be distributed under the same copyleft license terms. If copyleft-licensed code has been incorporated into proprietary Platform components by contractors whose IP assignment clauses are either missing or limited to "deliverables," the Company may face a compounded problem: not only may the Company lack a clean assignment of the contractor's original code, but the contractor's code itself may be subject to copyleft obligations that could require the Company to release its proprietary Platform code under an open-source license.
This risk is particularly acute with respect to the two contractors who contributed to the API integration layer and who operated under agreements that lack any IP assignment clause. If these contractors incorporated GPL- or AGPL-licensed libraries into their code, and if that code has been integrated with the Company's proprietary Platform code in a manner that creates a "derivative work" under the applicable copyleft license, the Company's proprietary code could be subject to the copyleft license's distribution requirements.
Analysis. We emphasize that this is a theoretical risk that has not been confirmed by a technical code audit, and the Company's engineering leadership has indicated that its development practices include policies against the incorporation of copyleft-licensed code into proprietary Platform components. However, given the absence of express IP assignment clauses for the two API integration layer contractors, the Company's ability to verify and enforce its code provenance policies with respect to contractor-contributed code is limited.
Remedial Recommendation: The Company should cross-reference the open-source audit results (from the Software Composition Analysis tool scan described in the IP Diligence Memo) with the contractor contribution records for the six pre-2020 contractors identified in Section V above. Specifically, the Company should identify which open-source components are present in the code modules attributable to each contractor and determine whether any copyleft-licensed components have been incorporated into or linked with the contractor-contributed code. In addition, the Company should conduct a focused code audit of the API integration layer and the backend data processing modules (the Pinnacle-contributed components) to confirm clean separation from any copyleft-licensed components. This cross-reference and code audit should be completed as part of the near-term remediation plan (within 60 days post-closing).
VII. DTSA Compliance
The Federal Defend Trade Secrets Act of 2016 (18 U.S.C. § 1836 et seq.) provides a federal civil cause of action for the misappropriation of trade secrets. Section 1833(b) of the DTSA establishes whistleblower immunity protections for individuals who disclose trade secrets in confidence to a federal, state, or local government official, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law. Under 18 U.S.C. § 1833(b)(3)(A), an employer is required to provide notice of this whistleblower immunity in any "contract or agreement with an employee that governs the use of a trade secret or other confidential information."
Current Compliance Status. The Company's current Standard CIIAA (adopted in mid-2019) and current standard Independent Contractor Agreement (adopted circa 2020) both include the requisite DTSA whistleblower immunity notice. All employees hired after mid-2019 and all contractors engaged after 2020 have received the required notice.
Legacy Agreement Deficiency. The Legacy Form employee agreements (pre-2019) and the pre-2020 contractor agreements do not include the DTSA whistleblower immunity notice. This affects approximately 28 current employees (those who signed the Legacy Form) and approximately 6 pre-2020 contractors who were engaged in development roles.
Analysis. It is important to note that the failure to include the DTSA whistleblower immunity notice does not create an IP ownership gap or otherwise affect the assignment of intellectual property from the affected employees and contractors. The DTSA notice requirement is a separate compliance obligation that affects the Company's remedies in a trade secret misappropriation action, not the Company's ownership of assigned IP.
Specifically, under 18 U.S.C. § 1833(b)(3)(C), if an employer does not provide the required whistleblower immunity notice in a contract or agreement with an employee, the employer may not be awarded exemplary (punitive) damages or attorneys' fees in a civil action for trade secret misappropriation brought against that employee under the DTSA. This limitation on remedies is a meaningful practical consequence, as exemplary damages under the DTSA may be up to two times the amount of actual damages (18 U.S.C. § 1836(b)(3)(C)), and the recovery of attorneys' fees can be a significant component of a trade secret plaintiff's total recovery.
Remedial Recommendation: The DTSA whistleblower immunity notice should be included in all confirmatory assignment agreements obtained from Legacy Form employees and pre-2020 contractors as part of the remediation efforts described in Sections IV and V above. This will cure the DTSA notice deficiency on a going-forward basis for the affected individuals. We further recommend that the Company's human resources team review the current onboarding process to confirm that the Standard CIIAA (which includes the DTSA notice) is being consistently executed by all new hires at the time of their onboarding.
VIII. Summary of Identified Gaps and Remedial Recommendations
A. Table of Issues
The following table summarizes the IP assignment gaps and compliance issues identified in this memorandum, together with our assessment of the risk level associated with each issue and our recommended remedial actions:
B. Prioritized Remediation Plan
Based on the foregoing analysis, we recommend the following phased approach to remediation, organized by timeline relative to the anticipated Initial Closing of the Bridge Financing on January 15, 2024:
Immediate Actions (Pre-Closing or Concurrent with January 15, 2024 Initial Closing)
1. Missing Employee Agreements. Obtain executed Standard CIIAAs from the three (3) current employees who do not have any invention assignment agreement on file. These agreements should be presented to the affected employees promptly and executed in advance of the Initial Closing.
2. Mehta Confirmatory Assignment. Obtain a confirmatory assignment or written confirmation from Arjun Mehta regarding the prior invention (prototype payment routing algorithm) listed on Schedule A of his CIIAPA, confirming that all derivative works, enhancements, and improvements based on the prior invention have been fully and irrevocably assigned to the Company.
3. Legacy Form Employee Outreach — Phase 1. Begin outreach to the 28 Legacy Form current employees to obtain confirmatory assignment agreements, prioritizing the 12 employees in engineering and product roles. The goal should be to have confirmatory assignments from the 12 engineering/product contributors in hand by the time of the Initial Closing or as promptly thereafter as practicable.
4. Disclosure Schedule. Prepare appropriate disclosure language for the Company Disclosure Schedule to be delivered to the Purchasers in connection with the Note Purchase Agreement (delivery anticipated January 14, 2024). The Disclosure Schedule should address: (a) the Legacy Form "agree to assign" deficiency for pre-2019 employees and former employees; (b) the three missing employee agreements; (c) the two pre-2020 contractors without IP assignment clauses; (d) the deliverables-only contractor assignment limitation; (e) the Pinnacle Software Solutions Ltd. Indian-law governed assignment; and (f) the open-source / copyleft intersection with contractor code. The disclosure language should describe both the issues and the Company's remediation plan.
Near-Term Actions (Within 60 Days Post-Closing)
5. Complete Legacy Form Confirmatory Assignments. Complete the execution of confirmatory assignment agreements from all 28 Legacy Form current employees, including the remaining 16 non-engineering employees not covered in Phase 1.
6. Pre-2020 Contractor Outreach (No Assignment Clause). Contact the two (2) pre-2020 contractors who contributed to the API integration layer and who operated under agreements lacking any IP assignment clause. Negotiate and execute retroactive assignment agreements with these contractors.
7. Pinnacle Confirmatory Assignment. Contact Pinnacle Software Solutions Ltd. and negotiate a confirmatory assignment agreement governed by Delaware law, covering all IP created under the