When new technology businesses come to the market, the fortunate ones with a fantastic product will experience a period of rapid growth.
During this time, it can be challenging for business owners to keep up with legal matters.
This comes into sharp focus when they need to raise funds and investors examine what legal steps have been taken to protect the business and its assets, including its intellectual property (IP).
Throughout their years advising entrepreneurs in businesses at various stages of their development, Anthony Garrod and Robert Marcus, partners at virtual law firm Jurit LLP, agree that there is one issue which comes up time and again.
How best to protect a business’ IP in its core technology.
Technology is the prime asset of a business – whether it is a company run by medical practitioners improving the management of data in hospitals, or a business offering flight management systems for a range of new applications.
But what are some of the key considerations for owners of businesses bringing technology innovations to market, to protect their business at this stage of rapid change? Anthony and Robert explain.
Be clear about who owns the software or code
Most technology businesses operate through a company which has a separate legal identity from the people who own it and work for it.
The prime asset of the business, apart from its people, is its intellectual property. This includes everything from software code, data and knowhow to the brand.
For the purposes of this article, if we take a look at software, this is protected by copyright and is owned by the author.
However, the author often isn’t the same, in legal terms, as the company through which the businesses is conducted and in which investment is made. This means that if the IP rights in the software are not assigned to the company by the author, the technology is not owned properly by the business.
How to transfer ownership to your business
In this instance, for the software code to be owned by the business, it must be assigned to the company by the author who should also be asked to waive their moral rights in relation to it.
Where a person is employed to create software for the business, the IP rights to it may be assigned (in the case of copyright) to their employer by operation of law – this is called a statutory assignment.
However, it is unwise to rely on this alone for ownership of the software. For a belt and braces approach, you should include a formal assignment in an employment contract or service agreement.
If you outsource work to subcontractors who are not employees, a statutory assignment wouldn’t apply to them.
This could represent a significant risk to your business and the ownership of the software you deem to be yours. It is therefore important to ensure you have a formal assignment of rights in place from the contractor to the company.
Beware the impact of foreign jurisdictions
Whilst English law recognises an assignment of rights created in the future (for the work contracted for), this might not be the case in other jurisdictions.
If you operate across multiple locations around the globe or your subcontractor is based abroad, you may need an additional confirmatory assignment at the conclusion of the work to ensure that all rights are vested in the company.
In some jurisdictions it can also be wise to register copyright as evidence of ownership.
What about open-source software?
Most programmers these days will include open-source software (OSS) in any code created for your company.
Why is this important? Well, OSS is licenced software, so the terms of the licence dictate how it can be used. The rights also remain vested in the author of the software.
This means that you might not be able to modify the OSS and some licences may require software in which the OSS is incorporated, to be offered to others on the same terms e.g. free!
It is best practise to maintain a log of OSS incorporated in the company’s software and the licence under which it is used. Any investors will want to know that they are getting value of their investment, and you will have to demonstrate to them that this is the case.
What about AI?
Artificial intelligence (AI) systems often combine elements from multiple sources to create AI-generated works. These are owned by the person or corporation which ‘controls’ the AI.
As a user, you will need to be aware of the risks of potential infringement of third party IP rights, and as a copyright owner, you will need to consider additional protections, including registering trade marks or design rights.
In the UK, the Intellectual Property Office (IPO) is working with AI users and copyright holders to produce a voluntary code of practice to balance the interests of AI users and the rights of copyright holders.
Don’t compromise your rights
If your company is developing new applications for its core technology for a particular customer, it’s usual to negotiate rights to protect their investment in what is termed foreground rights.
It is important to seek legal advice to ensure that you do not compromise the company’s rights in its core technology (or background rights) in the development agreement.
Reassure potential investors
Potential investors into your business will require proof and reassurance that the company they are investing in owns the rights in its assets.
They will also want to ensure that it is well run and that the usual range of agreements are in place.
These can include a shareholders agreement, service contracts with directors, employment contracts, commercial contracts with service providers, together with the terms on which you trade, supply services, and licence your software.
Being well organised when it comes to commercial agreements and contracts, will ensure that you preserve the value of your business.
Maximise value from your content
You will create value by retaining the IP rights in your products and services and will generate revenue through licence fees or service charges.
If you are creating content for a client, such as a video or modifying a software program for a specific use, it’s likely that you will have to negotiate the terms of the licence through a development agreement, to allow the client to enjoy full value for their investment.
You may be surprised, however, what you can negotiate.
For example, you can restrict exclusive rights to exploit content for a specific term or for use during a specific period, while retaining the right to the content to promote your business.
There are lots of ways you can protect your business and its technology but in the throes of rapid growth, it can be hard to get to grips with what is needed and when.
At Jurit, we specialise in supporting high-growth technology start-ups with exactly that – providing the insight and commercial acumen needed to help you on a call-off basis, to protect your business and its technology, into the future.
Get in touch for more information at jurit.com
Anthony Garrod and Robert Marcus are partners in virtual law firm Jurit LLP and specialise in advising entrepreneurs in businesses at various stages of development, on the commercial exploitation of their intellectual property.