This is a guest post by Philippa Sturt, Managing Partner at Joelson. Having become a partner at Joelson in 2012, Philippa specialises in advising on all types of corporate and commercial transactional matters and, in particular, Philippa regularly helps founders/entrepreneurs and their companies with investments and fundraisings as well as shareholder arrangements.
All startups create and own Intellectual Property (IP), whether this is a logo, a secret recipe, or the contents of a website. IP is what sets you apart from your competitors. Often your IP is and will remain your most valuable asset. Therefore, protecting your IP is vital to the success of your startup.
What is IP?
To protect your IP, you first need to know what IP is. Some different types of IP are:
Patents are registrable, and they protect inventions and innovations. They can prevent third parties from using exploiting your inventions unless they have your permission or a licence. Patents can last for a maximum of 20 years from the time of filing the patent.
Trademarks are registrable, and they protect brands, such as slogans, symbols, words, the shape of goods or their packaging, as well as internet domain names. Protecting your brand will allow the public to distinguish you from competitors; they can help you preserve goodwill amongst customers, and they protect you against misappropriation. Once a trademark is registered, it has to be renewed every ten years; otherwise, it will lapse.
Design protects the visual appearance of products. There are two types of protection:
- A registered design where designs are examined and registered.
- An unregistered design which is automatic, but offers less protection.
Once a design is registered, it can be protected for a maximum of 25 years. Initially, the design right will last for five years from the date it is registered and will need to be renewed every five years.
Copyright protects certain categories of creative works, such as literature, artistic works, photographs, music, dramatic works, software code, sound recordings and published editions. Copyright is an unregistered right; therefore, you cannot point to a register to say that you own the copyright of a piece of work. This means that identifying the copyright-protected materials that you own is crucial to ensure that you protect what is yours. Most works are protected by copyright for 70 years from the end of the calendar year in which the author of the work died.
Trade secrets are specific forms of confidential information that are commercially valuable, treated as secret, and give startups a competitive advantage. This covers recipes, formulae, market data and client lists, amongst other information. To keep trade secrets protected, it must be established that the information is confidential and anyone that is told the information should sign a non-disclosure agreement.
Identifying and Protecting Your IP
A good starting point to identifying your IP is to list every idea, invention, product, logo, slogan or other ideas you think you have created. Then searches, such as searching the UK Trademark Registry, an AllWhoIs search for domain names or even a Google search, should be carried out on the forms of IP that are registrable, such as trademarks and patents, to determine whether the IP is already owned by another party. If the searches are clean, then you should engage lawyers as soon as possible to get the IP registered to ensure that you own it. Lawyers can also help you determine whether items on your list can be protected, identify IP that is not easy to spot such as copyright and help you protect your IP.
The cost of protecting your IP will depend on what kind of IP you are looking to protect and where. If you have copyright, this arises automatically, so there are no initial costs, but there is a fee for registering a trademark which will be dependent on which jurisdiction you are trying to register it in and in how many classes on the register. The cost starts at £170 to file a trademark in a single class in the UK (without legal assistance) and can go up to several thousand pounds. You can register a single design right in the UK for £50, but, again, the fees increase from there.
Top Mistakes To Avoid
Not Having the Proper Documentation
Often, IP is created through a collaborative process, whether that be through using consultants or co-founders and employees working together to create things like logos or websites. Unless the IP in what is created is properly assigned using the correct documents, the startup company itself may not own the IP.
Also, you need to ensure that your employees do not disclose confidential information or trade secrets to third parties in the course of doing business with them, e.g. providing recipe details to a potential manufacturer. A good way to protect yourself is through confidentiality provisions in contracts and/or non-disclosure agreements.
Not Protecting Your IP from Investors
When seeking investment, you will have to disclose information. During this disclosure process, you should be careful to avoid losing any unregistered IP rights by, for example, providing useful information to a potential investor which they can then use in their own business. Non-disclosure agreements can be used to ensure that potential investors will not copy or share the materials that you share with them with others.
Infringing IP Rights of Third Parties
Startups should ensure that they do not infringe the IP rights of third parties. For instance, when creating your logo or company name, without carrying out the correct searches, you could infringe a third-party trademark. Without having the licences required to use things, such as software, you could be building your startup around someone else’s IP. Once the owner of the IP discovers this, they can demand that you to stop using their IP or sue for damages, which may be detrimental to the future growth of your startup.
What Happens If Things Go Wrong?
Given that your IP is one of your most valuable assets, it’s important to protect it even if things are not going too well.
One thing to consider is what happens if there are two or more co-founders, and one decides to leave the business. Often, when starting a business, co-founders will design the concept and create the business from scratch and it’s, therefore, a good idea to ensure that all the IP created by the co-founders is assigned absolutely from the start to the startup company so that if you later fall out, you don’t have to worry about a co-founder taking IP away from the business.
Likewise, if you think your startup company is not going to make it and you might be insolvent or need to wind the company up, you should take steps to extract any IP that remains valuable from the business. If you wind up a company with any assets still remaining in it, these technically end up belonging to the Crown, and you would then have to go to court to recover them, so it’s important to ensure that any assets, including IP, have been assigned either to the founders or another company prior to commencing the winding-up process.
Through protecting your IP, you will be protecting potentially valuable intangible assets of your startup that set you apart from others. The first step is to identify the IP that you own and then you should engage lawyers to help you fully list the IP that is yours and help you protect it.