Importance of IP for Startups

For entrepreneurs, registering an IP can be financially challenging and legally complicated, especially during the initial incorporation stage. Considering the value and importance of intellectual assets, it is vital for every startup to have an IP strategy to ensure that these assets are well protected. This may also have a positive influence when looking for funding and investors as ownership of IP is considered as one of the most valuable assets of startups and investors will generally look for secured IP rights that may prove to be lucrative in the future. IP rights play an important part in monetizing an idea and investment as it gives the IP holder the right to exclusively use the asset/technology as they deem fit. Therefore, one of the first questions the investors usually ask is whether the startup secured IP rights for its proposed project/idea.

Identifying & Prioritizing IP Rights

To ensure that intellectual assets are well protected, a startup should first thoroughly analyze its business plan, strategy and products, and effectively identify each possible IP right/class that it needs to register. This is crucial as a failure to anticipate a future development may result in an unregistered IP right, which may result in loss of profits from a specific product in the future. So, every possible IP right of the startup should be identified as a first step, then the most vital ones depending on the budget of the startup should be protected as a second step.

IP rights fall under various categories. Some IP rights such as patents, utility models, trademarks, designs need to be formally registered, whereas IP rights for copyright, such as artistic works and source codes, can arise automatically. There are, of course, alternative options for such copyrights, where an optional registration method is available as per the Law, which allows the right holders to register works protected under the Law to the registry system administered by the Ministry of Culture and Tourism. However, it should be noted that simply registering a copyright via this method does not grant a right over the works, instead gives the author an advantage over third parties in case of a conflict regarding the ownership of the work.

Another important aspect to take into consideration is to have a clause for transfer of IP rights created by the Employee to the company during the employment period. This is crucial as most IP related intra-company disputes arise from the products/technologies developed by the company employees, during their employment duration. Therefore, all employment contracts should have special clauses ensuring that any product, technology or idea developed by any employee during their formal employment duration shall be deemed as the company’s IP.

Transferring IP Rights

IP can also be transferred by using license agreements. Startups have the chance to get a license to use IP belonging to other companies and grant licenses for other companies to use their IP, allowing them to further monetize their products/technology. License agreements can be exclusive or non-exclusive for a certain time period and also for a certain region. This is especially important for apps or software developed externally via third parties, as the developer (this can be an external contractor, a freelancer etc.) will initially acquire the IP rights to the app/software (due to him/her being the developer). Therefore in these cases, the startup should construct the agreement with the third party developer to ensure that the IP rights concerning these apps/software are transferred to the startup from the developer, as a failure to do so may have grave implications in the future, in terms of ownership and monetization rights.

Trade Secrets & Non-Disclosure Agreements (NDA)

Although securing IP rights is a crucial part of securing the future of a startup, investors should also be aware that not every idea and project can be patented or otherwise registered in terms of IP (either due to the idea/project not satisfying the eligibility criteria for IP registrations, or funding/financial concerns). Disclosure of such unregistered IP, such as trade secrets and/or knowhow, can be very critical for the survival of a startup, and since these cannot be protected with IP rights, they should instead be secured via non-disclosure agreements and confidentiality clauses within agreements signed with third parties and company employees. Non-compete and non-solicitation clauses are also equally important, however, startups should also consider the provisions of the Competition Law when including these non-compete clauses within agreements.

Conclusion

Underestimation of IP strategy is one of the biggest mistakes startups can make, as it may have serious economical ramifications. Therefore IP registrations and securing these rights must be considered and included within the initial investment cost and the budget should always take the costs for these into account, at the initial company formation stage. Late application for IP can cause irreparable harm to the company, especially if another party secures these IP rights before the startup can file for an application.  In order to avoid such problems, it is extremely important to consult an IP professional before deciding the IP strategy of the start up.

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