A new-born business can be vulnerable to legal claims as it often will not have the means to defend itself. It will therefore be important at the outset to be aware of the risk that your business will infringe the intellectual property (“IP”) rights of others, in particular their patents, designs, trade marks and/or copyright. There are various searches that solicitors, trade mark and patent attorneys can commission to assist with this process.
2. Identifying the IP that you are using
It will also be critical to identify what IP is used by your business and which is of most value to the business. You can then take appropriate steps to ensure the key IP is properly owned, licensed and/or protected; to plan a robust commercial strategy to monetise it; and in turn to attract outside investment.
IP is a complex area of law, and you should seek expert advice, but by way of example, your business may own (or license from third parties):
- registrable trade mark rights and/or goodwill and reputation in the brand;
- copyright in software or documented know-how, business methods and processes;
- patentable inventions (eg software, mechanical products or industrial processes);
- design rights in the look and feel of products; or
- other trade secrets that are protectable as confidential information.
A start-up often begins life as an informal partnership of individuals with a mix of creative, technical and commercial expertise, who may share the business ideas and prototypes they generate with potential investors in the hope of securing funding. In such circumstances, the ownership of the core business IP can be unclear, and it may even be devalued. The aim is normally for such IP to be owned by the entity that operates the business. Alternatively, another entity may own the IP and license it for use in the business (see 5. below).
You should therefore consider:
- clarifying the ownership of IP in formal shareholder or partnership agreements;
- having written contracts with outside consultants that expressly state any IP they create is transferred to the business (IP rights developed by your employees will in general automatically be owned by you unless agreed otherwise);
- requiring potential investors and other collaborators to agree to keep any disclosures you make to them confidential (ideally by way of a formal non-disclosure agreement).
Once you have identified your IP and ensured that it is owned by the right entity, you also need to consider whether any further steps can be taken to protect that IP, and if so whether the cost is justified.
For example, a business may automatically own some IP in its trade marks and designs without having to register them. However, registration is often advisable, on the basis that it gives the IP far better protection against infringement and makes it easier to commercialise.
Inventions will need to be registered as patents to provide a business with a monopoly in relation to that IP for up to 20 years within the relevant territories.
If you are considering patent or registered design protection for an invention, it is particularly important that you have an appropriate non-disclosure agreement in place with anyone to whom you disclose your invention, prior to making a filing.
5. Making the right use of third party IP rights
To the extent that the IP used in your business is not owned by you, it is important to ensure that it is appropriately licensed from the third party owner. To take the example of software, in order to keep costs down, it is common for tech start-ups to rely heavily on open source software in the development of their own product. While open source may be free, it is still supplied under licence and therefore care should be taken to ensure that the relevant licence terms do not inhibit the future commercialisation of that product. For example, if your product were to incorporate code provided under the GNU General Public License, you may be obligated to license your product to your customers for free! This would obviously be a significant deterrent to would-be investors.
By Daniel Pearce and Andrew Tibber