Ownership of IP Assets: Making Your Small Business Fit For The Future

Failing to sort out who owns what idea in your business could cause huge divisions and ultimately spell disaster. So what do you need to do?

Ownership of IP Assets: Making Your Small Business Fit For The Future

Intellectual property (IP) is one of the key drivers to success for a small business. IP rights can be used to protect a business from competition, allowing it to carve out a distinctive position in a market.

By protecting your brand through trade mark registrations, for example, you can stop competitors from using similar branding to produce copycat or counterfeit goods or services. Similarly, patent and design protection can put a brake on competing products which do the same job or look the same as yours.

Why it’s important for smaller businesses

This is particularly important for early stage businesses, as getting a toehold in a market, before perhaps larger competitors enter, is vital to establishing a revenue stream. Additionally,  your IP is often highly influential in securing early stage funding. Investors often consider IP to be the most valuable part of a business – the part which really distinguishes it from its peers.

So, it should come as no surprise that investors are keenly aware of the need to ensure that IP rights are owned by the investment target. If ownership issues arise during due diligence, they can scupper the deal altogether – it may be more trouble than it’s worth for an investor to resolve these issues before the deal closes.

Any entrepreneur should view IP ownership as a critical aspect of preparing for outside investment. Simple oversights at the earliest stage of business formation can cause long term issues for any business, especially when trying to secure funding.

For example, it is quite common for a business to be formed by a team of individuals, each fulfilling different roles. So, there might be someone who’s started a business before, a finance expert, a market expert and of course the originator of the idea. However, any IP rights which emanate from ideas or work carried out before the business was formed, may well belong to the individual creators.

Within a business, who owns the idea?

When forming your business, you’ll have to ensure that all these IP rights come into the possession of the company, or at least that the company has guaranteed long-term access. For example, the originator may have come up with patentable inventions. These will belong to him, unless he agrees to put them into the business, using a written agreement. It may be even more complicated than that, if the originator was employed by someone else before coming on board or is a director of another company.

It is even important to protect your IP as the initial team is being put together.  The use of non-disclosure agreements can prevent loss of patentability and ensure business ideas are not used by competitors.

Can you borrow ideas?

Licensing technology into a business can be complicated too. It may be that you need to access technology invented by someone else, to make your product work. However, the terms of any such licence need to be considered carefully. You need to ensure that the licensor cannot cancel the licence if they don’t like the look of your investment partners.

Any dealings you have with outside agencies will also need to be checked. For instance, you may make use of a design house to finish your product for market. It’s critical you capture the design IP that comes out of that process. Also, if you have any artwork produced by an ad agency, you must ensure you have a prevailing right to reuse the artwork, otherwise you might find that you won’t be able to migrate the artwork to future advertising campaigns without that ad agency’s consent.

It is therefore vital that appropriate contracts are in place with directors, employees and commisionees and that all IP is explicitly assigned to the company.

So, as you can see, you need to be aware of IP ownership from the very outset of embarking on a new business project – even, in fact, from when the initial spark of an idea formed in your mind.

Ed Round is a patent attorney, and Luke Hill is an IP lawyer, at Marks & Clerk

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