Orrick’s Founder Series offers monthly advice to UK startups on key considerations at each stage of their life cycle, from incorporating a business to possible exit strategies. The series is authored by members of our market-leading London Technology Companies Group (TCG), with contributions from other members of the practice. Our Band 1-rated London TCG team closed over 310 growth financings and tech M&A deals totaling US$26 billion in 2021 and led the European venture capital tech market for 26 consecutive quarters (PitchBook , Q2 2022). The First payment provided advice to founders on the process of setting up a limited liability company, the second installment provided advice to the founders on building their team, and the third installment provided advice to founders on motivating their team.
Beyond its employees (which we explored in the last two episodes of the series), a company’s intellectual property (or “IPs“) is often its most valuable asset, especially for companies in the technology sector. It is crucial to ensure that you own the rights to your intellectual property and to take the appropriate measures to protect your intellectual property rights. In this article, members of our Technology Transactions group offer advice on ten key issues to consider when looking to protect your intellectual property.
- Ownership of employee work product. As pointed out in the second installment of the series, startups should seek to put in place written contracts with their founders and employees, which provide for the transfer to the company of all intellectual property created by them. While the general position in English law is that intellectual property rights created by an employee in the course of their employment automatically vest in the company, the establishment of a stand-alone written agreement to assign intellectual property increases clarity and reduces the risk of future disputes over intellectual property ownership.
- Ownership of contractors’ work product. The general rule that applies to employees does not apply to third-party contractors and freelancers. Intellectual property created by third parties will belong to those third parties unless properly assigned to Company under written agreement. You must therefore enter into a subcontract containing appropriate intellectual property attribution provisions with any third-party subcontractor that the company engages to develop its intellectual property.
- Keep track of your IP development. It is important to keep traces of drawings and drafts (ideally signed, dated and marked “confidential”) which bear witness to the development of your intellectual property. If a dispute arises and you need to enforce your rights against someone using the same or a similar IP address, these records may be helpful in resolving the dispute. If you choose to register your IP, complete records are also helpful when preparing your IP registration application.
- Brands MT / ®. Trademarks or trademarks are the signs used by companies to distinguish their products or services, such as names, logos, slogans and designs. Such a mark can be protected by UK trade mark registration and can be renewed indefinitely in 10 year increments. Registering your marks gives you a monopoly over them in the territories where they are registered for the goods and services covered by the registration (provided these marks are actively used). Registering your marks also makes it easier to take enforcement action against third parties who attempt to copy your marks or use marks very similar to yours. A trademark can be licensed or assigned by its owner and is therefore a valuable business asset. Although you may still be able to file claims regarding your unregistered trademark rights, this relies on the common law doctrine of “passing off” and can be a long, difficult and potentially expensive process.
- Don’t confuse trademark registration with other filings. As mentioned in our First payment, it is a common misconception that registering a name with Companies House or a domain name for a website grants trademark protection. The processes are unrelated and the marks must be registered separately with the appropriate intellectual property office(s).
- Copyright ©. Software (among other creative works) may be copyrighted. Unlike trademark rights, in the UK copyright protection arises automatically when an eligible work is first created. Copyright protection gives the owner the right to prevent others from copying and improperly profiting from an original work for up to 70 years from the death of its author. You may be able to use the copyrighted work of others under license, but it is important to understand the terms of that license.
- Beware of open source software (OSS). Some licenses provide that if you combine the OSS with your proprietary (closed source) software, you are obligated to distribute your software on the same terms – usually for free – so it is essential that you understand the license terms of any OSS you you use.
- International intellectual property protection. If you trade overseas (or intend to do so in the future), you may want to consider obtaining intellectual property protection in those jurisdictions. This will help protect your intellectual property as you continue to expand globally and will be something investors will keep an eye on.
- Use Non-Disclosure Agreements (NDAs). NDAs are contracts that impose confidentiality obligations on parties to ensure that information exchanged between them remains confidential. Using NDAs is an effective way to protect against leaking or sharing your company’s confidential information (including intellectual property, such as trade secrets and proprietary source code) with competitors. NDAs can be used at different stages of a company’s growth, including with third parties you provide access to new products and designs at the R&D stage of IP development. NDAs can also be put in place before entering into in-depth discussions with potential customers and suppliers and with potential investors when raising funds (although early-stage investors in the UK may be reluctant to conclude NDAs for fundraising purposes).
- Protect your IP in contracts. Contracts with customers and suppliers should contain intellectual property ownership and licensing provisions of appropriate scope. Here are some of the key considerations in this context:
- Clients: Strong provisions are required in contracts with customers who use company-owned intellectual property so that you can retain control and ownership of the intellectual property. The terms must clearly state the scope of the license granted to the customer, including whether it is exclusive, sublicensable, transferable and/or limited in time or geographically.
- Suppliers: If your startup uses the IP of another company, this must be formalized by a written license or an assignment of IP. Unauthorized use of a third party’s intellectual property rights may result in an infringement action by the third party owner against your business.