The start-up intellectual property cheat sheet

13 February 2019

In a nutshell, "intellectual property" or "IP" refers to the intangible assets within your business that have been produced as a result of creativity, such as inventions, artistic works and brand names. IP is afforded protection in law, with patents, copyright, trade marks and design rights being the four main types of IP protection.

For many start-ups, IP may be the only material asset that they own at the outset. Incurring initial costs to protect and exploit IP can seem daunting for start-ups when resources are low; however, taking some basic steps and avoiding common mistakes will help to avoid a larger cleanup bill in the future. Being able to demonstrate you have a good understanding of IP issues will also help to instill potential investors with confidence and help secure funding (one more thing to showcase on demo day).

Get what you paid for (IP ownership)

The gig economy is booming and it is commonplace for start-ups to use contractors or freelancers to bolster their workforce and assist on projects instead of taking on full-time employees.

In an employer-employee relationship, the employer benefits from a general rule of law that they will own any IP created by their employees in the course of their employment (absent any agreement to the contrary). However, the same rule does not apply where you use a contractor or freelancer to create IP for you. The "I bought it so I must own it" fallacy is a common belief. Even if you have paid for the creation or development of IP, the contractor will still own the IP until it is specifically transferred to you. This transfer will require clear and unambiguous wording within a contract, signed by the contractor, stating that all the IP they created is assigned to you. Failure to get this arrangement papered up at the outset can result in requests for more money when you try to fix it later (which often comes to light mid-funding round following an investor request).

Keep shtum

Maintaining confidentiality is essential to protect your business know-how or trade secrets. If you do have an original business idea or new invention that that you've created, you need to be very careful about telling people. In particular, valuable patent protection for a novel product or process will be lost if it becomes public knowledge before you file for protection.

Make sure you limit disclosures to those required for the specific purpose of the disclosure and made only on a need–to-know basis. Discussions about any sensitive and confidential information should be subject to appropriate non-disclosure agreements.

Good housekeeping

Maintain internal records of who created what and when, particularly where there are multiple individuals working collaboratively on developing the same IP. This is particularly important for unregistered IP as your internal records may be your only evidence to assert your ownership of such IP.

You should also maintain a record of any material IP which is licensed in or licensed out and the terms of such licences (as an added bonus it will save you time and effort when it comes to an investment round).

Borrowing is fine (when you know what you are borrowing)

IP is freely available online, ranging from stock images through to open-source software. However, 'free' means free of cost, not free of restrictions. You need to be aware that each item of IP will come with its own set of licence terms which will dictate how you can use it within your business. Some of these licence terms are more onerous and restrictive than others. From a risk perspective, you will often be using this 'free' IP at your own risk on an 'as-is' basis.

Avoid using stock images to form part of your logo. Your logo should be unique to you in order for customers to recognise your logo as an indication of the origin of your goods or services.

Be particularly careful when incorporating open-source software into your own proprietary code as 'derivative works' of open-source software may inherit the same open-source licence terms, which could require you to distribute your proprietary software for free or publicly disclose your valuable source code (the so called 'viral effect' of open source software).

Know your market

Before you launch a new product or service or adopt a new brand, you should carry out clearance searches to see if there are any existing IP rights which could prevent you from using the IP. Even just using some free basic online searches will give you a feel for any existing barriers and help you to avoid wasting time and money on pursuing the development of IP which already exists.

Register the valuable bits

Some IP needs to be officially registered to obtain legal recognition (e.g. patents). Sometimes rights may or may not be registered (e.g. trade marks). Some protections (e.g. copyright) can be claimed without registration (most notably, source code is protected by copyright).

There are some easy and cheap wins, such as domain name registrations, which you can register from the word go. Conversely, certain registrations are inherently more expensive. Patents for example may be a later stage item, in which case confidentiality becomes your best friend to protect any valuable inventions in the meantime (see 'keep schtum' section above).

Creating a coherent IP strategy will help you know when to pursue IP registrations. Most importantly, you need to know what are your most valuable and material IP assets and your key jurisdictions. For example, if you have one main brand for goods or services which you intend to use to target a specific jurisdiction, then it would be sensible to seek trademark registrations in that jurisdiction.

Ensure any registrations made are registered in the name of the correct company entity. A common mistake is to register domain names and trademarks in the name of an individual at the company, rather than the company itself. This can cause headaches further down the line.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.


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