Every entrepreneur looks back and thinks about what they might have done differently in the early days. Mistakes happen, and often they are a valuable part of the learning curve, a rite of passage to success. However, making the wrong decisions around your new company’s IP can have serious and unwelcome long term implications, so it’s vital to know the potential pitfalls.
Commercial success is the common aspiration shared by all entrepreneurs, whether that’s securing outside investment for further expansion, or the sale of the business to realise a return. Here we unpick the mistakes ambitious start ups often make in handling their IP issues, and advise on how to avoid them.
1. Can you really rely on unregistered rights alone?
Whilst not all IP rights are registrable (copyright, for example, arises automatically upon creation), where available, registration can offer their proprietor a powerful tool when it comes to enforcement. For some start-ups, registrations are understandably seen as an extra cost or “non-essential luxury”, which can be particularly difficult to justify in the early days when money is tight. However, there remains a fi ne balance to be struck, and businesses should be careful not to dismiss all registration opportunities entirely out of hand. Whilst some may be desirable rather than essential, others could prove vital to growth.
For example, the valuable reputation and goodwill which a business builds as it trades attaches to its trade or brand name. When it comes to protecting your rights in that name, a business with a registered trade mark will be better placed to bring infringement proceedings under trade mark legislation, whilst the holder of an unregistered trade mark will be left to rely on a more complex and challenging claim under the law of passing off . Further, that great innovative idea or concept which promises to make you millions could lose its novelty, and therefore any prospect of a patent being granted, if made public prior to a patent application being fi led. In short, a well-meant (yet misguided) attempt to commercialise your idea without the proper security in place, whether due to time or financial pressures, could prove costly for the business in the long term.
2. Ownership isn’t always automatic
An equally important consideration is whether the business actually owns the IP which has been created. If the business is large enough to have employees, then legislation provides that title in IP created in the course of employment passes to the employer. However, application of this can be challenging in practice, particularly when considering the input of founders, friends and freelancers in the early days.
Any IP created by these “non-employees” will belong to them, unless it is assigned to the company. The take away point here is clear: when it comes to engaging others in the creation of IP for your business (whether employee, consultant or founding party), the written contract remains king when it comes to certainty of title.
3. Is sharing always caring?
Often overlooked, a business’ key confidential information (namely its trade secrets) is a valuable resource which should be protected, not neglected. Business methods and plans, statistical and financial information, recipes and customer lists (to name but a few) are all capable of protection, provided they are not public knowledge. In certain circumstances, the law on confidential information can provide businesses with a useful right of recourse in the event of a breach or misuse.
For these reasons, businesses should include confidentiality clauses when preparing consultant or employee contracts, and enter into non-disclosure agreements when engaging third parties in business-sensitive areas. Further, for those dealing with large quantities of confidential information, the implementation of clear internal policies and procedures for the handling and sharing of such information should not be discounted, as these can greatly reduce the risk of unwelcome “leaks”. This being said, there can of course be no substitute for guardedness when it comes to such disclosures – do they really need to know?
4. Eyes open
So your business has created or obtained IP, what next? Well, as an intangible asset of the company, its value and integrity directly impact upon the ultimate success of the business. However, the majority of start-ups fail to take a proactive approach to protecting their IP, meaning that infringing activities can occur unnoticed for some time before any action is taken by the business in response. By taking steps to monitor how, when and where competitors and other third parties might be using your IP, businesses are well placed to identify and respond to such activities before any permanent or long term damage occurs. Useful practices for achieving this include: keeping clear up-to-date records of owned IP assets; diarising registration renewal dates; and monitoring competitors online and even engaging third party service providers to carry out specialist monitoring tasks (i.e. trade mark watching).
Furthermore, vigilant portfolio management and wider awareness can help to identify IP belonging to others, allowing a business to ensure its own activities do not unwittingly infringe this IP.
5. Realising a return
As an asset of the business, any opportunity to commercialise and harness the potential of your IP should not be overlooked. Whether this is best done in-house, utilising the operator model, or licensed out to third parties to achieve a royalty revenue stream, will depend on the nature of the business, its resources and the appetite of its founders. Each comes with its own advantages and disadvantages in terms of reward, risk and investment. Ultimately, a business will need to consider: (i) how much responsibility and risk it is willing to assume; and (ii) how much control and independence it wants to retain when it comes to issues such as finances, business direction and execution, decision-making, quality control, and sales and marketing.
Whichever route is chosen, the critical point to remember is the value of a clear plan. Not only will this plan help guide the business, ensuring continuity in decision-making and allow for clear road-mapping for the future, but it can also prove an incredibly attractive resource to an investor or buyer further down the line when it comes to justifying forecast targets and growth.
The bigger picture…
We know the two major factors which impact on the decisions made by owners and managers of a growing business are time and costs. Both are in short supply in the early years, and founders must decide how these two precious resources are invested.
By considering the issues and options discussed above, and committing time and money “little and often”, where appropriate, the overall result can be preferable to the challenge of dealing with critical, and often complex, IP issues on the eve of that promising investment or buyout.
Tom Lingard