Intellectual property for start-ups in a post-COVID world: part three – managing commercial IP

This series of articles explores the effect of COVID-19-related disruption on start-ups’ management and monetisation of intellectual property (IP), giving practical guidance to start-ups to improve and preserve their position for the future.

In the fast-moving commercial environment of a start-up company, where funding, profit generation or expert sourcing may be top priorities, the need for protection and clarification of intellectual property rights can easily be overlooked.

Problems can quickly arise, when it comes to light that IP ownership is not as straightforward as it may seem. For that reason, even where there is what may seem more exciting work to be done, it’s important to consider your contractual position as it relates to intellectual property.

This article will address some of the key considerations given to ownership of patent rights (which relate to technical inventions), designs (which relate to the appearance of a product), and copyright (which relates to creative works such as source code), related contractual provisions, and the shifting approach start-ups should take given the impact COVID-related disruption is having on the way start-ups are working.

Naturally, COVID-19 will create new financial challenges, but even a short-form agreement setting out key provisions will often be better than no agreement at all. It’s imperative that, before any creative or inventive work is carried out, whether by employees, contractors or otherwise, the contractual terms relating to ownership of current and future intellectual property is set out in writing, a clear budget set aside to capture the drafting, negotiation and preparation of any relevant agreements.

What’s stayed the same?

In relation to IP ownership and commercial considerations, little has or is likely to change.

Tracking ownership, and why it’s important: In the UK, a designer, creator or inventor is usually the first owner of the underlying intellectual property rights in any invention, original design or creative work. The exception to this, is where an invention, design or work is created by an employee working in the normal course of his/her duties, in which case the owner is the employer.

At infancy, start-ups may rely principally on contractors, as costs to hire permanent employees can be high. Unless the contract provides for an express assignment of IP rights, the contractor may own the underlying intellectual property rights in anything he/she invents during the course of work performed under the contract. This can be particularly problematic where questions arise regarding ownership of patents, registered designs or copyright, especially at funding or at restructuring stages where good due diligence should identify any holes in the chain of ownership.

Importantly, if the wrong person applies and registers a design or patent, it doesn’t necessarily mean they can keep it.

Inventorship: In relation to patents specifically, it can be important that the true inventor of the invention is properly acknowledged. A recent UK Supreme Court decision awarded GBP 2m to an employee/inventor in relation to an invention patented by his employer, for which the employer received an “outstanding benefit”. Another key reason to put in place clear contractual provision at the outset.

Licences: Whilst ownership of IP rights is often the key concern for start-ups, licensing should not be overlooked, whether that’s licensing IP or securing any licence from a third-party. Generally, the key provisions of any licence should address the field of use (how the IP can be used), territory, royalty payments, auditing, right of action (if any) and termination, plus define whether the licence is exclusive, sole or non-exclusive. In addition, and to avoid any possible issues in enforcing the licence, it’s often vital that the licence is recorded at the relevant IP office.

What’s changing? 

COVID-19 has changed the way many people work and, with it, created a challenging financial environment, with many companies looking at alternative funding streams or possible collaborations.

Multiple parties: Given the rapid need for certain technologies, we are likely to see more parties working collaboratively. This will inevitably result in complex ownership questions which, if not clearly defined at the outset, may be significantly harder to resolve at a later stage.

Inventing at home: Without a clearly defined working environment and more relaxed working hours, it may become increasingly harder to distinguish when an employee is or is not working in the course of his/her employment. Furloughing of employees may also give rise to complex ownership questions, particularly where any over-zealous employee develops technology later used for the benefit of the company.

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