Posted: 05/12/2024
Intellectual property (IP) is often the most valuable asset for early-stage companies, particularly those in the technology and life sciences sectors. IP rights not only provide legal protection for an innovation but can also help establish brand identity and be used as collateral to secure financing. IP does not just mean patents but also includes copyright in software and other works, database rights, design rights, trade marks and other rights. The main different types of IP are described in more detail below.
Developing an effective IP strategy that protects an innovation and enables the enforcement of a brand is crucial. To develop such a strategy, you need to identify what IP you own and understand what is required to protect that IP.
It is important to establish who owns the IP required for use in the company’s business and to ensure that any IP created or acquired by the founders prior to the formation of the company is properly transferred to the company in a written assignment. It is often wrongly assumed that IP in works and materials created by founder shareholders or directors will be automatically owned by the company. This is only the case if they are also employees.
Companies spinning out from universities or other research institutions will typically be looking to exploit IP generated by researchers at the institution. The ownership of this IP will be determined by the contracts in place between the university and the researchers (eg the academic’s contract of employment or student’s PhD agreement) and any funder of the research. Universities generally have an IP policy (often available online) that deals with the ownership, use and management of IP generated by staff and students. Before IP is licensed or assigned to a spin-out company the university will have to complete a due diligence process to establish ownership and identify any encumbrances, for example consent requirements or revenue-sharing obligations with funders or previous employers of the researchers. The spin-out founders will need to negotiate with the university the basis on which the IP will be exploited by the spin-out company. In most cases, in order to protect the IP from the spin-out’s potential insolvency, the university will wish to retain ownership of the IP rights, at least until the spin-out company is well funded or undergoes an exit, in which case the spin-out founders will need to negotiate an exclusive licence to use the IP rights in the company. The university will invariably require a licence back to use the IP for academic research and teaching purposes.
Where an early-stage company employs its own staff the IP provisions in the employment agreements may need to take account of other commitments that the employee may have. Companies should bear in mind that where an employee is working mainly in the UK, the law lays down the circumstances in which the employee’s patentable inventions are owned by the employing company and those in which they are owned by the employee, and this cannot be altered by contract. For other types of IP these are automatically owned by the employer when made in the course of the employee’s employment, but this can be changed by agreement.
IP takes a number of different forms and may apply in combination to protect a particular product or invention.
Patents protect new inventions that are capable of industrial application. Obtaining patents is expensive and can take many years but once granted they confer a monopoly right to work the invention, ie to use a patented process or to make, use, keep, dispose of and import a patented product, and are generally available for a period of up to 20 years from the original filing date provided maintenance fees are paid.
Generally, separate patents must be obtained in individual countries, although it is now possible to obtain a European unitary patent that takes effect across EU member states currently participating in the unitary patent system.
Although the inventor(s) will be named on the patent, and anyone can apply for a patent, a patent will only be granted to the owner of the rights in the invention. This may be the inventor, the employer of the inventor(s) or another party that is otherwise entitled to the invention, for example under a contract with the employer or inventor. Before applying for a patent it is important to keep the patentable invention confidential as the right to a patent will be lost if it is disclosed other than under an obligation of confidentiality.
Early-stage companies seeking patent protection for innovations will need to consider when in the development process to do this. The claims of a patent application need to be sufficiently supported by the application, so filing too early may mean missing out on a wider scope. On the other hand, delaying filing can make it difficult to secure investment and may risk losing the opportunity to patent if the invention is publicly disclosed or someone else gets there first. Before making a patent application a prior art search should be carried out to check whether or not the invention intended to be patented is new and non-obvious in light of the prior art. Investors may also require a ‘freedom-to-operate’ search to be carried out to establish whether the proposed product or service might infringe a patent owned or applied for by someone else.
A trade mark registration offers monopoly protection for brand names, logos and other signs indicating trade origin. Registering a company’s name and logo as a trade mark will help to establish the brand and make it easier to take enforcement action if someone else tries to use
a confusingly similar name or logo. The same goes for product names. Initially, a search should be carried out to check that the name or logo is not already being used by someone else. Provided that the mark sought is not identical or confusingly similar to an existing mark, or similar to an earlier mark with a reputation, then a registered UK trade mark may be obtained relatively inexpensively for an initial term of 10 years, and this can be renewed indefinitely for further 10-year terms.
Like patents trade marks are territorial, so they must be applied for separately in the main countries where you are intending to do business.
Copyright protects an author’s original intellectual creation from being copied by others. Literary works, graphical designs, photographs, artistic and musical works, films and computer programs can all be protected by copyright. Copyright is an important means by which early-stage companies can protect the original works they create including software code they develop. Unlike patents or trade marks, copyright exists as soon as the work is recorded in physical or electronic form. Copyright lasts for 70 years from the end of the last year of the author’s life.
It is good practice to put others on notice of copyright by placing a copyright message in the form “© [owner name] [year]” on copyright works in order to create a presumption of copyright.
The protection of product designs is complex because of the number of different, overlapping regimes under which they are protected. There are now four different design right regimes that apply in the UK to protect product designs that are new, have individual character, and are not commonplace. These are UK unregistered design rights, continuing unregistered community designs (CUDs), supplementary unregistered designs (SUDs), and UK registered designs.
If you own a registered design, no-one else may make products to this design without permission, regardless of whether they copy the design. Like copyright, unregistered design rights arise automatically, but only prohibit actual copying of the design. CUDs, SUDs and UK registered designs protect the overall impression created by the product – the product’s ‘look and feel’.
UK unregistered design rights protect the shape and configuration of the design (whether or not it is visible) but not surface decoration. Design protection does not extend to aspects of the design that are dictated by technical function or the need for the product to match or fit another product.
Design rights last for much shorter periods than copyright. UK unregistered design rights last for the shorter of 15 years from the date of creation of the first design drawing (or, if earlier, the date the first object is made to the design) or 10 years from the end of the calendar year when articles made to the design were first made available for sale or hire. During the last five years of the term of protection, a licence must be granted on reasonable terms to any party that requests one. CUDs and SUDs last for three years from the date the design is first disclosed to the public (eg at a trade show or by being made available for sale). UK registered designs may be obtained for an initial term of five years from the filing date and renewed for a total of up to 25 years.
Some product designs are protected by copyright as well as design right, but the extent of this is currently unclear. Given the length of protection for copyright compared to that for design rights it is clearly in the interests of designers if they can rely on copyright protection.
Database rights protect databases, which are collections of works, information or other materials arranged in a systematic or methodical way that are individually accessible. They should not be confused with database software. Databases are protected where there has been substantial investment in obtaining, verifying or presenting the contents of the database, but investment in creating the contents of the database does not count. They are particularly important in protecting collections of scientific, technical and commercial data, catalogues and directories. The right protects against extraction or re-utilisation of the contents of the protected database or a substantial part. Protection lasts for a period of 15 years from the end of the calendar year in which the arrangement of the database was completed.
This article is an edited summary from Penningtons Manches Cooper’s guide on ‘Navigating the journey of growth: key legal considerations for scaling up’. For a copy of our guide, please click the banner below or get in touch with your usual contact.
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