Looking for Investment? Get Your IP in Order

For many growing businesses, at the outset, intellectual property IP may not be at the top of the agenda. It can be challenging to get your head around and, at times, the exact benefit it’s going to deliver is not always clear.

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Get IP on the agenda

For many growing businesses, at the outset, intellectual property IP may not be at the top of the agenda. It can be challenging to get your head around and, at times, the exact benefit it’s going to deliver is not always clear. Instead, the focus tends to be on growth, cash flow concerns and reputation building – all legitimate focus areas.  But, as you look to the next stages of growth and seek investment, IP will become increasingly vital and getting to grips with it sooner rather than later will serve you well in the long run.

IP, including patents, trademarks, copyright, and designs, lies at the heart of many businesses’ success. Investors will expect to see their investments suitably protected and will need to be confident that they won’t see the same product, brand or invention springing up elsewhere. Think about all of those people entering Dragon’s Den only to be torn to shreds for not having protected their brand properly.

When it comes to an exit scenario via a sale or IPO of the company, tremendous value can be placed on a well-protected brand and, weaknesses in such protection could ultimately result in a lower valuation.

How IP protects your business

IP is also vital to protecting your business. Contracts with suppliers can often look harmless and very much ‘on standard terms’ but sometimes they contain no IP clauses at all which leaves ownership in doubt or, even worse, can give rights to third parties – an issue we have recently advised an early-stage company on. The company in question almost inadvertently transferred all IP rights in its food product to a manufacturer, simply because they hadn’t read the ‘standard terms’ properly.

We also see businesses seeing extensive delays to completion on investment rounds because of IP disputes and, in some cases, investors pull out as a result. A recent example involved advising an organisation that was about to complete an investment round, only for a potential trade mark dispute to hold up the deal. In the end, the investor requested a revaluation which really impacted the business and the investment they eventually got.  The crux of it was, the business was worth less due to the risk of expensive litigation.

Key steps to take

It can feel like a daunting and complicated process but there are key steps that can be followed to ensure you have suitable IP rights in place:

• First and foremost, understand what IP you have – where in the business it is being developed and who is developing it. Be wary of work you commission from contractors (i.e. non-employees).
• Assess whether your IP is properly protected – sometimes, IP protection arises automatically, such as copyright and some design rights, and these rights do not need to be registered. Other elements will need to be registered such as patents and registered trade marks and designs.
• If you have something that can be patented, do not disclose it to anyone without first seeking expert advice as, once disclosed, you’re unlikely to be able to obtain a patent at all.
• Ensure any tangible rights are held by the right person – this should be the company as opposed to the founder or an employee directly as an investor will want to see that the business they’re investing in is the owner of the IP.
• Have protection against employees leaving – this can be a real challenge as ex-employees can take ideas, and sometimes even the IP itself, with them. Employment contracts and contracts with suppliers (i.e. web-developers/designers) should be reviewed or put in place to ensure IP is owned by the company.

It’s important to remember that it is never too early to seek legal advice and ask the questions that are concerning you – it can be crucial to avoid ending up in a situation that cannot be undone.

With contribution from Gill Dennis, intellectual property law expert, specialising in all aspects of the protection and enforcement of brands and creative rights.

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