As a scale-up business, it is likely that your intellectual property is one of your most valuable assets, particularly if you build and / or sell software and related services. As alluded to in the previous note in this series, protecting that IP is a crucial element of securing the long-term success of your business.
This article provides a quick overview of the IP rights ("IPRs") that are most relevant to tech scale-ups, and the protection these rights provide. We also summarise some of the practical steps you should take at an early stage to ensure your secret sauce is kept secret!
IPRs protecting software
Copyright, which subsists automatically in a 'work' if certain requirements are met (e.g. originality) is the primary IPR protecting software. It protects the source code and object code that constitute the software, as well as other elements including the accompanying materials and documents (e.g. specifications or flowcharts), any elements of the programme which constitute a database (though note “database right”, below), and the user interface. Broadly speaking, copyright restricts the acts of copying and adaptation of the whole or a substantial part of the work. It's important to note that copyright protects the expression of the software, and not the idea behind it (see more on this below).
An invention is patentable if (subject to some exclusions) it is new, involves an inventive step, and is capable of industrial or technical application. Computer programs are not patentable 'as such', but the application of a piece of software can be if it has 'technical character'. This is a very technical area where specialist advice is normally required.
If elements of a computer program constitute a database for legal purposes, but fail to meet the requirements of copyright protection, those elements may still be protected by a separate 'database right' (which protects against the extraction or re-use of the relevant contents).
A trade mark will not protect a piece of software in and of itself. However the branding connected with that technology (e.g. logos, business names and so on) may be protected by registering them as trade marks. Protection can also be provided without registering a mark (by the law of 'passing off'), if certain requirements are satisfied.
'Confidential information' is not an IP right, but it is extremely important in the tech context, as it's often difficult to protect the idea underpinning software or other technologies. It is therefore important that any sensitive information (code in particular) is only disclosed on a 'need to know basis' and under an NDA (or similar).
Other practical steps you can take
Keep things confidential!
See above. Taking practical steps to ‘drip feed’ information on a need to know basis is important, overlapping that with a prudent legal approach.
As highlighted in our previous note, anything to do with IP in contracts you enter into should be gone through with a fine-tooth comb. Be wary of words which hint at any kind of assignment or transfer of your IP to the other party, and ensure any licences you grant (or indeed receive) are suitable in scope. In a software development context, make sure that any contracts with external coders contain clear IP assignment language – without this the relevant contractor will probably retain the IP in materials they create.
Advice should be sought at an early stage on the best way of structuring your company in order to preserve your IP. The most common way of achieving this is to set up a holding company which owns all IPRs, and which wholly owns a separate trading entity (which enters into contracts etc.), thereby 'ring-fencing' the IP. Suitable corporate, tax and commercial IP advice should always be sought case-by-case.
Consider employing encryption and other techniques to prevent copying of your software.
Other things to be aware of…
In certain cases, so-called 'moral rights' (e.g. the right to be identified as author) apply in relation to copyright works. They do not apply to computer programs themselves, but may apply to materials relating to a program – e.g. design documentation. It's therefore important that moral rights waivers are sought where appropriate.
Open source software
If you wish to take advantage of open source software it's important that you read and comply with the relevant licence terms, as they can sometimes impose strict conditions. In addition, any promises or warranties you give in your contracts regarding your software (e.g. about ownership or functionality) should contain suitable caveats where OSS is involved.
Ultimately, it's important that any scaling tech company gets a handle on its IP position as soon as possible. This will provide peace mind, and having your ducks in a row will help to avoid problems when it comes to seeking investment or indeed any future exit event.
Any questions? Contact Alistair Cooper, Associate, at email@example.com
Also see our Fastec series.