In August 2014 Kaspersky Lab published the results of a survey which revealed that 21% of manufacturers suffered a loss of intellectual property (IP) within the past year.
Unsurprisingly the survey focused on cyber related IP losses which are, of course, high risk areas and where both technological and practical steps must be taken to protect IP.
Most businesses are aware that it is possible to protect legally certain IP by registration, for example by registering inventions as patents and registering names and/or logos as trade marks.
Other IP protection arises automatically without any formal registration requirement, such as copyright and unregistered design rights. However some IP, such as know-how and confidential information, is not capable of such protection and businesses need to take other legal steps to protect it, such as ensuring that any disclosure to a third party is under a strict contractual obligation to keep it confidential.
Frequently though, in our experience, failure to properly protect intellectual property arises from simple legal mistakes. Whilst the effect of these failures can be rapid, quite often the problems only come to light when shareholders seek further investment or are looking to sell. This can result in a significant reduction in the investment or price being paid for the shares. It can sometimes torpedo a deal entirely.
Typical, real life mistakes include:
disclosing, which includes writing an academic paper or exhibiting at a trade fair, a patentable invention before applying for a patent, thereby losing the right to patent the invention. Where a business patents an invention, that business has a monopolistic right to exploit that invention;
failing to obtain restrictive covenants from an employee so, when the employee resigns, that employees is free to take customer lists and know-how and set up in competition;
not understanding a contract that the business signs and which gives away its intellectual property to its customer. This is far more common than one would expect. A start-up business, in particular, can be so excited about its first major deal that it fails to spot the one or two lines in the small print of the contract which transfers the intellectual property in its product to its customer;
developing a software product and having the code written by an external contractor. If the business fails to ensure the contractor transfers to it the IP in that code, the IP remains owned by the contractor. This is perhaps the commonest mistake as it is contrary to the logical assumption that if a business has paid for something, it should own it. This common mistake will prevent a business taking legal action against a rival who has copied “its” code.
By taking early stage legal advice businesses can easily avoid these types of issues.