Authors: Carl Rohsler, Memery Crystal Partner & Head of Commercial, IP & Technology & Ally Clark, Solicitor
Over 500,000 new companies are incorporated in the UK each year, that’s an average of 1,370 each day. But only 60% of those new businesses survive the first 3 years. So whilst it is quite easy to be a start-up, it’s a tougher challenge to be a scale-up.
Scaling and growing your company is a new challenge and requires the owners to rethink their approach to a number of problems: minimise risk, deliver predictable growth and profitability, and professionalise your approach. One of the key areas to think about is intellectual property (IP).
As a start-up, you identified the different types of IP owned, controlled and/or used by the business and you are likely to have developed a rudimentary strategy for managing, exploiting and protecting it on a shoestring. You know who your competitors are. You know what IP protections those companies hold in terms of trade marks, patents and designs. You may have identified gaps (or blocks) contained in those pre-existing IP rights. You may have even registered a trade mark (or a couple) to protect your company name in a key territory (or a couple). But prospective investors will expect to see a coherent plan for the development and protection of IP within the business and safeguards against risk of infringement. Carl Rohsler and Ally Clark from Memery Crystal’s Commercial, IP & Technology (CIPT) team offer scale-ups some top tips.
- Review what you have
Before you approach investors, you need to ensure that IP is properly protected with a clear and staged strategy for development. Ensure that rights which may have been created by outside agencies or be held by directors or employees are effectively assigned into the company, and that any loose ends are sorted out now.
- Expanding your brand
You may already have some basic form of trade mark protection, but now is the time to think about (a) protection for key product names, (b) logos and variants of the basic brand name, and (c) reviewing the specification of trade marks to ensure that they cover not only the core goods and services but ancillary or related products. Take the opportunity to review your domain strategy to counter cyber and typo squatting as you become more well-known.
Think about the countries in which you will be operating in the future, and ask a trade mark attorney to arrange searches of key jurisdictions and assess risks for expansion. Use the opportunity to put in place a trade mark watching service which will allow you to see other marks coming onto the register which may interfere with your rights and growth plans.
- Protecting key technology
Where technology has been kept confidential, consider whether it is possible to apply for a patent or a registered design, and a think about the jurisdictions in which those protections might be sought. The protection of key technology and the patent applications is often the factor that gives a business its long-term competitive edge. But make sure that your patent portfolio covers all the areas where you, or your competitors are likely to be active, and that you respect the dates for filing for equivalent protection in other countries whilst retaining priority dates. At the same time, take the chance to invest in any freedom to operate opinions so that you are proactively aware of the potential for your own developments to be subject to infringement allegations from third parties.
- Document your unregistered IP
One of the most difficult due diligence questions which is asked on the lawyers’ inevitable questionnaire is “list all the significant unregistered IP on which the business relies”. Answering that might involve, for example, assessing all the copyrights in software, websites, graphics, business plans, and every other piece of paper that your have employees doodled on. It’s probably impossible to get the answer completely right, but having a common location and system to log creative works (whether a document management or content management system, or just a drawer of blueprints) is an important way of getting to grips with that issue. Be sure that copyright assignments of commissioned works are in place.
- The stuff you can’t see
Some of the most important value in a business is actually contained not in patents or trade marks patents or assets at all, but the experience of you employees and key figures. Capturing that knowledge (whether the value of knowing industry contacts, the ability to formulate a new flavour, or the algorithms that allow you to predict the world better than others). Know how, experience and data are increasingly the key currency of business – but these true intangibles can largely be protected only by contracts – NDAs, know-how sharing arrangements and employment contracts with enforceable restrictive covenants. You know how your business runs better than anyone else. So take steps to asses where that value really lies, and protect the otherwise uncapturable now.
- Review and negotiate your key IP contracts
As you grow, it will also be important to ensure that any new written agreements with customers and suppliers relating to key IP are negotiated by a commercial lawyer with expertise in IP law to ensure that IP aspects of the contract are managed effectively on, to the extent possible, terms favourable to your business. Whether it is a joint venture to develop and exploit technology, or a licensing and distribution agreement for your product, take the chance to review agreements. And if you haven’t got the time or expertise, pay for someone to conduct such a review. As one simple point, do all of the licences that involve your name or brand contain an accrual of goodwill clause? Think about implementing a contract management system so that contracts are (i) all kept in one place (ii) key dates for renewal or termination are respected.
- Consider IP holding structures
After you have carried out an IP audit (see point 1 above) you will have a clear understanding of the IP that your company holds and you will have also identified any shortcomings in the operations of the scaleup in relation to the creation, protection and management of IP. It is time to consider whether creating an IP holding company to hold and ring fence all IP from the group might be a good idea. Inter-group licensing structures can move and recognise value in a tax-efficient way.