In the digital and technological sectors, intellectual property is fundamental to our business model. Not only will the intellectual property be critical to the operation of the business, but if you are ever looking to sell or attract investment, a buyer or investor will want to know that your right to the intellectual property is secure.
So what should you bear in mind from the word go. And when is it time to get specialist help? Even if you’re not looking to present your company as an attractive option for sale or investment right now, these points are still relevant to make sure you’re protecting your intellectual property rights – and making the best of them at the same time.
What investors or buyers look for is a well thought out and proactive intellectual property strategy which ensures that the business is in control of its core intellectual property assets; a worthy goal, regardless of whether you are looking to sell or not.
-Any buyer will want a list of the intellectual property you own – if you can’t provide this, or it is missing obvious intellectual property which you should own, it may cause the buyer to question the security of its proposed investment.
-It is particularly important to ensure adequate protection for intellectual property attaching to assets which are fundamental to your business model; for example, a piece of software which the company sells. Where possible registered protection should be obtained, as this can make enforcement easier and will generally give assurance to third party investors or buyers that you are proactive in managing your intellectual property.
-Below is a general summary of the main intellectual property we might expect a company to own (this is not exhaustive). Where registration is possible, the registered and unregistered equivalent is set out (most intellectual property does not need to be registered but may be easier to protect where it is).
Establishing ownership of the intellectual property
-In order to attract investors / buyers, or to successfully enforce your intellectual property against third parties, you will need to be able to prove you own the intellectual property in question.
-Showing ownership of registered intellectual property should be relatively easy; the registration documents can be produced.
-For unregistered intellectual property, you will need to show the intellectual property passed from the original creator to the company (a company cannot create intellectual property itself; only its employees or other actual persons can do so).
-Intellectual property produced by an employee in the course of employment is by default owned by the employer. However, intellectual property produced by a contractor is by default owned by that contractor, not the party commissioning the work. Both of these presumptions can be overruled by terms in the relevant contract.
-Therefore, if a contractor has developed core intellectual property for you, the contract for the work should contain an assignment of the intellectual property from the contractor to you, to overcome the default presumption. Any buyer or investor will want to know this assignment has occurred. Not obtaining assignments is a very common error made by small start-up businesses.
Third party challenges
Investors or buyers will want to know about (and you should keep a record of):
-any allegations of intellectual property infringement (by or against you);
-any challenges to the validity of your intellectual property; and
-any checks as to the existence of relevant third party intellectual property rights which have been made.
-If your business uses another party’s intellectual property, or you allow another party to use your intellectual property, you will be licensing intellectual property, either to or from such third parties.
-The terms of such licensing should be carefully agreed and negotiated, ideally with legal advice. In a sale or investment context, buyers will want to see copies of these terms and will be unimpressed if these do not give you the level of protection needed.
-You will need to be able to identify that your business has a proper licence of any intellectual property it needs to use (such as software) and that such licences do not contain overly onerous terms and will not be jeopardised by the proposed transaction (for example a “change of control” provision).
-Buyers and investors will also want to see the terms of any licences of the business’s intellectual property to third parties, to ensure that these licences contain appropriate commercial terms, and do not unduly restrict the assets.
Open Source Software used by your company or incorporated into software
-Buyers and investors understand that it is sometimes appropriate to use Open Source Software. However, they will be more concerned where Open Source Software is incorporated into software products sold or licensed by your business. Open Source Software is not ‘free’ in all senses; it is still distributed under a licence, which contains terms which investors or buyers will want to see to ensure a) you are in compliance and b) the terms do not contain anything which would be a risk to the company business model.
-In particular, investors or buyers will want to know that Open Source Software licences do not contain ‘copyleft’ terms; these can require you to disclose the complete source code of any software you produce which incorporates the Open Source Software in question. Clearly, this is undesirable where your business model relies on selling or licensing that software.
-It will be helpful if you can show that Open Source Software you use is documented and that you put in place procedures to ensure that licence terms are complied with.
-Confidential information is also an important intellectual property right, which buyers and investors will want to know has been protected. Important confidential information might include customer or price lists, business strategies, and inventions or processes used by the business which have been developed internally.
-Any buyer is likely to want to see evidence of the procedures followed to protect confidential information, in order to be assured that the company has kept its confidential information secure.
-Steps you can take include drawing up schedules of important confidential information, ensuring confidential information is marked as confidential, and requiring parties receiving confidential information to sign non-disclosure agreements.
Hopefully this post has given an outline of the things you should be thinking about from the outset, both to protect your intellectual property, and to prepare for an eventual sale. You can find more detailed information here.
The key to any intellectual property strategy is to plan ahead and be proactive rather than reactive. Many of these elements will be far easier to implement at the outset than later on down the line. Certainly, if and when you are planning to sell the business, it will be much easier if you have properly protected and recorded your intellectual property ownership from the start.
Peter Dalton, Associate at Kemp Little LLP, leading technology and digital media law firm. Peter can be contacted on firstname.lastname@example.org
What’s your experience of protecting intellectual property assets? Any nightmare stories or close shaves? Share your best-practice tips below…