When setting up a new company, there are a number of pressing issues to be addressed. First and foremost, there is the critical issue of raising capital. In addition, substantial time and energy needs to be invested in developing a sound business plan, deciding how a particular product or service will get to market, finding a suitable business premises, recruiting reliable staff – the "to do" list goes on and on.
Dealing with all of these matters is extremely important. But it is also crucial for any start-up to take a step back and to determine where the true value of its business lies, or will ultimately lie. For example, in the case of a product or service that will be distinctively branded and marketed, the trade mark or service mark has the potential to become extremely valuable. If a particular piece of technology has been developed, and if revenue will be generated by licensing that technology to end users, consideration needs to be given to the manner in which the technology should be protected and the type of licensing structure that should be put in place.
While in most cases there will be a limited budget available to address the various matters on a "to-do" list, and the protection of intellectual property rights may well be ranked below what are considered to be more pertinent issues, if steps are not taken at the outset to safeguard such rights, it may prove difficult, and more costly, to remedy any issues that arise at a later date. In particular, when investors start to express an interest in a target company, they will want to know whether all intellectual property rights are fully vested in that company.
Intellectual Property Rights
The main types of intellectual property rights are (1) trade marks; (2) copyright; (3) patents; and (4) design rights. There are also other forms of intellectual property, which are often overlooked, such as confidential information and trade secrets, as well as database rights.
Protecting A Trade Mark
A company's brand name or logo can be protected as a trade mark. A trade mark is essentially a badge of origin that enables customers to distinguish one company's goods or services from those of its competitors. For many companies, one of their most valuable assets is their brand – as is the case with sportswear lines such as Nike, or soft drinks manufacturers such as Coca Cola.
Trade marks can be both registered and unregistered. However, where a trade mark is not registered, the owner of that mark can only seek to prevent third parties from using an identical or confusingly similar mark where the relevant mark has a significant reputation, or substantial goodwill vested in it. This is unlikely to be the case for a start-up's brand or logo and as a result, start-ups would be well advised to take steps to register their trade mark.
Before using a particular brand name or logo (and before substantial time and money are spent on producing marketing materials incorporating a particular brand/logo), it is advisable that searches are carried out to determine whether any prior mark exists which could prove to be an obstacle to use and/or registration of a particular mark. These searches would include a review of various registers of trade marks, but would also extend to broader searches of business directories, the Internet etc.
A trade mark can be registered in a variety of ways depending on the scope of protection required but the trade mark system generally works on a county by country basis. When a trade mark is registered, that mark is protected in the jurisdiction in which such registration is effective. For example, if a product or service will only be provided in Ireland, then an application to register a trade mark should be filed with the Irish Patents Office, as protection will only be required in this jurisdiction. Registration can also be obtained in specific countries. So for example, a particular logo could be registered in the UK and in Ireland. Alternately, where EU-wide protection is sought, a Community Trade Mark (CTM) application may be filed, which, if approved, will give protection throughout the twenty-seven Member States.
The registration, when granted, is normally valid for a period of ten years, but may be renewed (usually for a fairly nominal renewal fee) for further ten year periods. As a result, a trade mark can be protected indefinitely, provided all renewal fees are paid.
In essence, therefore, the trade mark system will serve to protect a start-up's brand.
Copyright Protection
Copyright subsists automatically. There is no registration requirement. In this jurisdiction, copyright law protects literary, artistic, dramatic and musical works. It is the primary source of protection for computer programs and restricts the ability of third parties to use software, unless they have a licence to do so.
Copyright is the manner in which a start-up can protect the expression of an idea.
Patents
Ideas that are new, inventive and susceptible to industrial application may be capable of registration with the Irish Patents Office. If an application to register a patent is approved, the inventor is granted a monopoly for a fixed period of time (usually twenty years) in relation to the claims set out in the patent. Similar to trade marks, the patent system works on a country by country basis, and accordingly, a patent application should be made in those countries in which protection is sought.
While in this jurisdiction computer programs are not generally patentable, this is not the case in other jurisdictions, notably in the US. As a result, an IT start-up may wish to consider whether it is possible to patent its technology in other jurisdictions, as the monopoly rights acquired where a patent is granted could, potentially, be extremely attractive to key investors, and extremely lucrative for the start-up.
Irish tax legislation has a favourable regime in place which exempts certain patent royalties from tax. The legislation applies to income derived from "qualifying patents" when received by a person resident in Ireland and not resident in any other country. A "qualifying patent" is defined as a patent in relation to which the research, planning, processing, experimenting, testing, devising, designing, developing or similar activity leading to the invention, the subject of the patent, was carried out in the European Economic Area.
To be patentable an invention must be new. If an invention has been made publicly available before the date of filing of a patent application, the novelty is destroyed. As a result, one of the most important issues for a start-up is to guard against disclosure of any invention that it hopes to patent. One way of doing this is to ensure that comprehensive non-disclosure agreements are executed in respect of disclosures made relating to the invention, and that any such disclosures are only made on a "need to know" basis.
Designs Rights
In order to protect a novel design, the design may be registered or unregistered. Design rights can protect the shape of goods or their packaging. Graphic symbols and logos can be protected as designs.
Employees / Contractors
While identifying the various types of intellectual property rights owned by a start-up may be the first step on the road to protecting such rights, it is also important to ensure that all intellectual property developed by employees, contractors, consultants etc. are fully vested in the start-up. This will be one of the key points that investors in, for example, a technology start-up, will seek to clarify.
Issues can often arise in relation to ownership of intellectual property in an employment context. Where an employee makes a discovery or creates something of value in the course of his or her employment, the fruits of that labour will usually be owned by the employer. However in the case of a consultant or contractor, the default position is that the author of a particular piece of work (e.g. the developer of a software program) is the owner of all intellectual property rights in that piece of work.
As a result, where a start-up is receiving services from independent contractors, it should ensure that the relevant contract for services includes a comprehensive assignment of all intellectual property created by such contractor while providing services to the start-up. Employment contracts should also include detailed provisions dealing with ownership of intellectual property created by employees.
As regards the protection of confidential business information, and other proprietary information, non-disclosure and confidentiality agreements may also be required.
External Investment
Intellectual property can be an integral part of the value of any company, and as such can be a critical element in obtaining funding from outside investors. All investors want to maximise returns and minimise risks. As a result, they will seek assurances that all IP assets are protected and owned by the start-up, and that their capital investment will not be wasted by costly IP litigation.
By taking steps to build a strong IP portfolio at the early stages of any business, and by putting in place measures to protect these valuable assets, investors will be assured that your start-up has the sustainable advantage of a comprehensive IP strategy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
