Potential oversights of entrepreneurs – protection of intellectual property

Potential oversights of entrepreneurs – protection of intellectual property

Running a business is a tough ask of anyone – between maintaining cash flows, keeping customers happy, managing your employees and looking for potential investors (or dealing with current investors), there is a lot that can fall through the cracks. One of the things that is very easy to forget about, especially with the more modern, technology-heavy businesses, is the protection of your intellectual property (IP).

In the technology sphere, copyright law governs the development of computer software, which is much of what the entrepreneur of today is dealing with. As an entrepreneur, you may come up with a great idea that is going to be the next “Google”. So you call your business partner up and spend countless hours in the office and cups of coffee developing this new idea, whilst running your business at the same time. You come to the end of this, completely overworked, and you have produced the holy grail of products that is going to revolutionise the industry, and you own it, right…? Well, when considering this a little further, that may not be the case.

If your business is a company, you may be in for a surprise – it is probably the company that owns the product that you have just developed and not you personally. If that previous comment made you break out into a cold sweat, not to worry. Below are some factors that you should consider when developing a new idea as a director of or shareholder in a company:

• Did you use the company’s property or time to develop the product? As an example, did you use a company laptop and normal working hours to develop your new product?

• Is the product that you developed substantially similar to other products developed by the company or did you use the company’s software code to make your new product? As an example, if your company develops an app that is involved in data collection in agriculture and you develop an app that collects data in retail, it is likely that because of the common data collection thread, the products are substantially similar. It may also be likely that you “borrowed” some of the code from the previous app to make your new app.

If your answer to both or one of the above is “yes”, then your company probably owns the product that you just developed. This also should not be too much of a problem though. If you and your business partner (if you have one) are the only shareholders in the company, then both of you can just agree to transfer the product out of the company. The only difficulty comes in where you have investors looking for an opportunity to get a return on their investment.

It is not uncommon for investors to factor in protection against the company disposing of any property (including IP) without their consent, as they will almost always want a good return on their investment. You could be stuck in a situation where you have to share the fruits of your labour with the other shareholders in your company, which is not ideal.

A good way of avoiding this is, as soon as you are in the process of obtaining your first round of funding from your first investor(s), introduce a “pay-to-play” option into your company’s shareholders’ agreement. This will essentially provide that any new intellectual property that you are thinking about developing will be offered first to the company and then to any investor, provided that if they want a share in it, they must put some capital into the project, which project can, and should, be placed into a new company.

There are many more layers to this issue, but the long and the short of it is that you should always be wary of losing all your hard work due to a simple legal slip up.

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