Securing AI Talent in AI Startups by Using IP Moats
Introduction
The AI talent frenzy is reaching a crescendo. In the fast-paced, high-stakes world of AI, talented engineers and their teams are highly sought after. Recruitment for AI talent is now resulting in compensation packages once reserved for superstar professional athletes. When direct hiring fails, companies like Meta, Google, Amazon, Open AI, and others resort to creative deal types to acquire talent while avoiding regulatory scrutiny. One such structure is known as “acqui-hiring,” wherein a larger, more established technology company acquires a startup (or a portion of the startup) primarily to secure its key players or their team.[1]
While the acquiring company wins the talent they were after, acqui-hires often occur when the startup has little to no patent portfolio. This may result in founders losing the value of their creative efforts for a discounted sum and VCs losing the opportunity for significant returns on their AI startup investments. This trend could discourage future venture investment by muting potential returns on AI startups which are vulnerable to acqui-hiring.
This post discusses how strong IP moat protection, particularly strategically obtained patents in the form of blocking rights, can help to discourage acqui-hiring and drive startups to realize their full potential or benefit from a more valuable, full acquisition that values the company’s technology protected by IP.
Acqui-Hires Today
The competition for elite talent at the cutting-edge is intensifying and acqui-hiring is the strategy behemoth tech companies are turning to. From Google’s acqui-hire of DeepMind in 2014 to its “reverse acqui-hire” of Character.AI ten years later, the practice is becoming increasingly popular and the race to acqui-hire talent is heating up.[2] In May, OpenAI acquired former-Apple executive Jony Ive’s company, bringing him onboard after Sam Altman called him “the greatest designer in the world.”[3] Meta CEO Mark Zuckerberg has reportedly emailed elite AI researchers in an aggressive push to build a new “superintelligence” group, led by former-Scale AI CEO Alexandr Wang. Meta recently hired Wang to lead the new team after acquiring a 49% stake in his data labeling company.[4] Acquiring companies sometimes obtain “defensive” licenses in these deals, getting founders to hand over licenses or claim releases in order to insulate against legal trouble without appropriate compensation.[5] Many Big Tech acqui-hires of AI startups are even drawing regulatory scrutiny.[6]
What Startups and VCs Risk
AI development often relies heavily on highly specialized talent. While indispensable, a focus solely on talent and rapid product iteration without securing underlying technological innovations with IP can make an AI startup vulnerable to being acquired simply for its engineering team. In such cases, the acquiring company might integrate the talent and take key technological assets and future IP potential from the startup when these assets could have been better protected with blocking rights.
For VCs whose returns are tied to the company’s overall success and exit value, an acqui-hire focused purely on talent without capturing the full value of the technology and its future IP value is a huge lost opportunity for significant return on investment. For talented AI founders, who become early targets, getting forced off their ship to board another one too soon is particularly problematic, as AI unicorns have been shown to achieve value creation earlier than non-AI counterparts[7].
The Value of IP Moats for AI Startups
IP rights, especially patents, create durable barriers to entry and define the future owners of valuable technology. Patents provide a unique legal monopoly that prevents others from making, using, or selling the patented invention, even if they developed it independently. There is no requirement to prove the infringing party had access to protected technology to prove patent infringement.
This “blocking” nature of patents is crucial in preventing acquihiring. If a startup’s core value is derived from novel, protected technology, an acquiring company cannot simply hire the team and rebuild or reverse-engineer the technology without infringing the patents. They must acquire the entity that owns the blocking IP rights too. This protects founders and investors alike from being thrown off course with little value to show for it.
The historical example of STAC Electronics v. Microsoft illustrates how patents can level the playing field and force a larger player to engage with a smaller company on the strength of its IP.[8] STAC’s data compression algorithm was so critical that Microsoft incorporated a similar product into its operating system without purchasing STAC, investing in STAC and/or taking a license. Microsoft was sued for patent infringement, found to have infringed by a jury, and ultimately settled, paying significant damages, investing in STAC and incorporating STAC’s patented technology via settlement license terms. This demonstrates that when a company’s core technology is protected by strong blocking patents, a potential acquirer is incentivized to acquire the whole, valuable ship, invest in the company and/or take a license and pay significant license fees rather than encouraged to pluck out the team and/or just take the technology.
Conclusion
The AI market is experiencing an “Innovation Stage” where unique, proprietary technologies protected by durable IP rights will provide companies with differentiation and long-term barriers to entry. As this market matures and consolidation occurs, IP rights will play a decisive role in determining dominant players. By strategically securing strong blocking IP rights, AI startups can ensure that their technological value is recognized and protected, making them attractive targets for full acquisitions or high valued licenses rather than opportunistic acqui-hires. This not only maximizes the potential return for founders but also ensures that venture capital investment is protected by durable assets, further encouraging future investments in the sector. Building strong IP moats around key technology is essential for AI startups aiming to capitalize on their innovations and secure their future.
DISCLAIMER: The opinions expressed in this blog post are not provided as legal advice.
By Bob Steinberg and Jacob Levine
Bob Steinberg is the Founder of Generative IQ® LLC, a venture fund that provides capital to early-stage IP rich AI start-ups. He has been protecting and litigating IP rights, working with technology entities and entrepreneurs navigating the IP landscape and monetizing blocking rights for over 30 years.
Jacob Levine is a J.D. Candidate 2027 at Harvard Law School where he serves as a Project Director for the Harvard Law Entrepreneurship Project. He graduated from American University in 2022 in the Global Scholars Program with dual degrees in Computer Science and International Studies. Jacob enjoys playing basketball and jazz music, woodworking, weight training, and reading. He loves to go on backpacking excursions with family and friends and attend concerts.
[1]https://blog.getaura.ai/ai-startups-targeted-by-big-tech;https://aimresearch.co/market-industry/how-reverse-acquihires-are-shaping-the-future-of-ai-amid-hiring-frenzies-and-layoffs;
[2] Other notable, recent examples include Microsoft’s acqui-hire of Inflection AI https://aimresearch.co/market-industry/old-employees-new-dollars-googles-2-7-billion-investment-in-character-ais-reverse-acquihire-for-ai-innovation.
[3]https://www.cnbc.com/2025/05/21/openai-buys-iphone-designer-jony-ive-device-startup-for-6point4-billion.html.
[4]https://www.theregister.com/2025/06/13/meta_offers_10m_ai_researcher/; https://www.nasdaq.com/articles/why-meta-fueling-frenzy-ai-talent-and-acqui-hires;
[5]https://a16z.com/the-complete-guide-to-acquihires/;https://www.globalcompliancenews.com/2021/08/09/legal-priorities-prospecting-ai-acquihire29072021/.
[6]https://www.cnbc.com/2024/07/16/amazons-deal-with-ai-startup-adept-faces-ftc-scrutiny.html;https://apnews.com/article/ai-artificial-intelligence-acquihires-amazon-adept-wyden-fa3cd0502a757e5a9ccb83d00bf9ad55.
[7]CB Insights State of AI Q1’25 Report
[8]https://www.latimes.com/archives/la-xpm-1994-02-24-fi-26671-story.html.
