MHC Tech Law: Why start-ups need to prioritise protecting their intellectual property


11 Apr 2016199 Shares

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Make sure your business' bright ideas are protected

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Sometimes put on the back-burner as other concerns occupy the business, Mason Hayes & Curran emphasises the importance for start-ups of protecting their intellectual property.

While it may not be the first thing that grabs your attention when starting up a new company or business, every start-up should consider intellectual property (IP) protection at an early stage.

Understandably, start-ups can often focus their initial efforts on raising finance and shortcuts can be taken in other areas, leading to shortcomings. One of these shortcomings can often be to fail to seek advice about how to protect the IP of the business. Decisions made at this stage often have long-term implications, both for the future of the company and potentially its tax liabilities.

Intellectual property: The different areas

There is often confusion about what is actually meant by IP. Essentially, IP falls into four categories – trade marks, patents, designs and copyright. Except for copyright (which arises automatically), all IP rights can be registered in Ireland and abroad. Trade marks are the most obvious example of IP. A trade mark or ‘brand name’ is any sign used in trade in relation to goods or services in order to indicate the origin of the goods or services, and includes company names and product names (which are often the same). It is the guarantee to the customer of the origin of a product or service and indicates the quality of the product or service.

Patents are inventions that are new, inventive and capable of industrial application, which have been successfully registered and grant a monopoly over the claims set out in the patent. It is crucial that an invention is not disclosed prior to applying to protect it. Non-confidential disclosure can destroy an invention’s novelty and, therefore, its patentability.

Copyright is often the primary protection for software, although patent protection should always be considered. Copyright also protects literary, musical and artistic works.

Designs are the Cinderella of IP rights and are often ignored. Designs can be very useful for protecting logos, packaging, GUIs (graphical user interfaces) and the like. Designs can be both registered and unregistered.

Patents, registered trade marks and designs are all territorial, so they only protect the IP for the country in which registration is made. Therefore, it is important that all key markets are identified at an early stage so that a cost-effective plan can be implemented. This can be often be structured on a staggered basis so that the costs can be absorbed over a period of time rather than in one significant upfront payment.

Where does IP fit in?

IP protection is not necessarily the first item that start-ups need to address. Usually, incorporating a company and, if necessary, entering into a shareholders agreement and raising capital are the first steps for any new business. However, IP needs to be considered very early on in the process.

For some start-ups, particularly in the technology sector, the main asset on which capital may be raised is the IP of the company and, for these companies, IP protection should be considered from the very start. Often investors expect, or demand, that critical IP is adequately protected before they will invest.

It can sometimes be even more important to check that you are not inadvertently infringing third-party IP rights, which could spell an early end to a new enterprise.

One advantage of registered IP protection is that the costs of obtaining patent and trade mark protection can be written off by a tax deduction. There are other tax incentives for research and development and scientific research. Newly-formed businesses should include IP and the possible tax benefits in their business plans.

Top tip

One misstep we see often in practice is that start-ups, and mature enterprises alike, can fail to have adequate paperwork in place with contractors. This can be in the mistaken belief that such paperwork is not that important. However, while Irish law has provisions covering employee-created IP, contractor-created IP will often be owned by the contractor – even if the start-up paid for it – unless there is a written assignment in place. The form of language of the assignment is not rocket science, but the absence of appropriate provisions can cause headaches down the line if looking to sell or take on investment.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

Tech Law is a weekly series brought to you by Irish law firm Mason Hayes & Curran, whose legal tech team advises the world’s top social media organisations and emerging start-ups. Check out www.mhc.ie for more.

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Bright idea image via Shutterstock