Intellectual property (IP) is a highly precious asset in today’s knowledge economy and a significant competitive advantage for technology startups. New innovations are constantly being developed in a fast speed, so how can startups make sure that their Intellectual Property Rights (IPR) are safe or they are not violating already existing IPR?
Besides start-ups, also investors need to have good understanding of basic IPR issues when funding a company. Kalliolaw Attorneys Ltd has created the below guidance for FiBAN members on typical IPR matters that are often reviewed during due diligence processes when assessing the value of start-ups. The information found out during the processes is also used to agree on the start-up’s post-investment commitments.
This 5-step start-up IPR checklist for business angels helps both investors and entrepreneurs to get started with the critical IP matters. You will also be guided through and beyond these steps - Kalliolaw’s experts are happy to help with any tricky IPR questions. You’ll find their contact information at the end of the article.
It is quite typical that the founders and at least certain shareholders have participated in the development of the start-up’s business without having written agreements right from the start. Therefore, the situation with the ownership and scope of IPRs might not be clear or optimal from the start-up’s point of view.
Please check whether the founders and shareholders have transferred to the company IPRs in the works they have developed for the purpose of the company.
Typical places to check: shareholders’ agreement, employment agreement, director agreement.
Alternatively, a founder or a shareholder might have licensed or transferred some IPRs to the company. This can be applicable e.g. to something they have created outside of the business of the company before founding the company. Please check that the license or transfer is clear and wide enough to enable the company to run its operations as needed.
Typical places to check: license agreements, IPR transfer agreements.
Please check whether the company has appropriate IPR transfer clauses in its employment agreements. It is important to agree explicitly that all IPRs in all work results are transferred to the company.
Finnish companies may also acquire rights in inventions created by their employees. Please check that has the company acquired rights to the necessary inventions made by its employees.
Typical places to check: employment agreement, director agreement, lists of patents and patent applications, patent databases.
3. Social media accounts, domains, trademarks and business names
In practice, domain names, trademarks and business names as well as presence in social media and other channels are valuable to any company irrespective of its maturity phase.
Even though all of these are not considered as IPRs, they still play an important role in companies’ branding and value.
It is relatively cheap to get protection for these identifications and to maintain such presence. On the other hand, it can be very expensive if they are not protected, and someone else registers or uses them.
It is recommended to check the ownership of the start-up’s marks, domain names, business names and accounts. If some of those are in the name of the founders/shareholders, it is important to transfer those to the company.
Typical places to check:
(a) Domain names: “Who Is” databases
(b) Business names: ytj.fi (Finnish business names), local registrars in other countries
(c) Trademarks: https://www.tmdn.org/tmview/welcome (this database contains information from all of the EU national IP offices, the European Intellectual Property Office (EUIPO) and a number of international partner offices outside the EU on trademark applications and registered marks)
(d) Trademarks: https://euipo.europa.eu/eSearch/ (this is a database of European Union trademarks and registered Community designs)
(e) Trademarks in Finland: https://epalvelut.prh.fi/web/tietopalvelu/haku
(f) Social media account information from the company
4. Third-Party Rights
Has the start-up checked that no-one else has exclusive rights to any parts of its business?
Has the start-up conducted their own due diligences to check that they are not violating rights of others?
Typical ways to check: ask from the company, freedom to operate studies performed by patent firms.
5. Third-Party Components
Companies in the technology and game industry often use third-party components or other materials of third parties as part of their commercial software, games or other products. These third-party materials can contain e.g. third-party software components, libraries, music and footage.
If a start-up company’s business relies on third-party components or materials – especially ones that cannot be replaced quickly and easily – it is important to review the license terms and conditions applicable to the components and materials.
The license terms and conditions need to enable the company to run its business as needed.
It is further important to check that the company is not using open source or similar components that could be “viral” – in the meaning that the company’s own products could be infected by the open source or similar license terms. In the worst-case scenario, the company’s software must be published to others in source code form. The use of open source or similar components also increases the risk of infringing others’ rights.
Typical places to check: license terms and conditions, lists of third-party components and materials.
Kalliolaw provides a full range of legal services to a wide spectrum of corporate clients, ranging from start-ups and SMEs to multi-listed international companies. In addition, we advise foundations, associations and public-sector entities.
We are able to advise clients in the whole spectrum of M&A transactions, from the due diligence, letter of intent and structuring phase to the negotiation and documentation of the transactional agreements, regulatory filings and the post-completion matters.
We help our clients with building successful strategies to protect their intellectual property rights.
Please note that while this article is meant to help you to identify some of the relevant aspects from Finnish law point of view, it is intended for general information purposes only and should not be relied upon as legal advice nor as a basis for decision-making.
Photo: FiBAN/Wasim Al-Nasser
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