Start-ups are often established as a result of an innovative idea. It is this idea, born from the intellectual endeavour of the founders, that will likely be the distinguishing factor that delivers a competitive advantage and ultimately drives revenue for the young business. Similarly start-ups generally don’t have a significant tangible asset base. Their value lies in their intellectual (intangible) assets. Consequently it is imperative for start-ups to quickly identify and protect their intangible assets. Failure to do so can result in a more established business co-opting their innovations and the start-up losing its viability.
The law recognises the value of intellectual endeavour and has created various classes of intellectual property rights to legally protect valuable intangible assets. Intellectual property (or IP) is simply the name given to intangible assets which are protectable at law. All start-ups will have brought IP into existence. While some IP rights will need to go through formal registration in each country they are used in, other types of IP rights arise automatically. These rights are established as a natural consequence of founders recording their ideas, taking marketing photos, drawing designs, or writing code for apps. As soon as these actions happen, valuable and protectable IP rights exist. This means that, as they would for tangible assets (premises, stock, plant and machinery) start-ups should plan to manage their IP assets, make a record of them, and make every effort not to lose them.
What should go into a start-up’s IP strategy?
Most start-ups will not have the luxury of being able to protect all of their potentially registrable IP at the outset and as a result, difficult decisions will need to be made regarding which IP rights to prioritise. Formulating a clear and practical IP strategy which is aligned with the start-up’s business plan is key to making the right decisions. Even where the budget is insufficient, if start-ups can recognise what needs to be protected early, steps can be taken to limit, or delay, spend until the business can afford it.
For example, by keeping the details of a patentable invention confidential, an inventor can protect it as a trade secret and so defer the costs of applying for a patent until the start-up is funded. By checking the assignment provisions in their agreements with consultants, a founder can ensure the business owns the IP rights in the materials it pays for. Just because you pay for something to be developed does not mean you own it. The list of “easy if you plan for them” fixes goes on.....
A good IP strategy will also provide a framework for protecting the business as it grows. It will put simple processes in place to identify a business’ IP as it is created, then capture it, and finally protect it. It will also help a business to take measures to check it isn’t infringing someone else’s IP and so avoid becoming entangled in expensive litigation.
Ownership of IP
All start-ups, regardless of the market and sectors they operate in, tend to struggle around the ownership of IP assets. For example, often there is more than one individual involved in launching a start-up. Unless the underlying IP in what these individuals create is properly assigned, in writing and in the correct form, the start-up company itself will not own it, and the rights will remain with these individuals. This can create real issues if one of these individuals later decides to walk away. In some cases, start-ups may not own or be appropriately licensed to use IP in deliverables they pay to be developed for them. Software, in particular, can create problems. An IP strategy will direct that a software trail should be created and regularly audited to identify who is responsible for critical code and ensure that underlying copyright is transferred to the company.
How can you prevent accidental disclosure of your IP?
Accidental disclosure of trade secrets is a common problem for start-ups, which is why it is important to maintain secrecy until proper decisions are made: either to seek patent protection, to continue to protect by way of trade secret, or to disclose (so no-one else can claim a monopoly right). Taking steps to ensure that employees and consultants do not disclose confidential information or trade secrets is a key part of this. This can be reinforced using confidentiality provisions in contracts and keeping valuable know-how, data, test results or client lists physically and technologically protected.
How do you allow others use your business’ IP?
If a start-up wants to allow others to use its IP, this should be documented in a written license agreement. When licensing IP, start-ups will at minimum need to decide how long the license runs for, how it can be ended, who can use the IP, where they can use it, what they can use it for, and whether they can be forced to share it with other people.
What next?
Intellectual property rights give you the legal ability to prevent others from stealing the intangible assets at the core of your business. Effectively protecting and asserting these rights can determine the success or failure of your business. As a result, this is taken seriously by investors, who will want to see that you have a strategy to manage your intellectual property assets. Therefore, investing some time and resources into the formulation of a robust IP strategy will lay the groundwork for future growth, expansion and investment so preparing the business for funding, IPO or sale.
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