UK Venture Capital - IPR intellectual property rights
Introduction
This tedious title of 'intellectual property rights' belies
the importance of this area. Anyone who's ever been a lawyer
will tell you that most of the time legal cases aren't worth
the time, emotional effort and expense. That's just how every
investor feels so make sure you don't throw up any nasty suprises.
Some of the usual problems which crop up are:
-
Vague or ambiguous split of existing equity - Sort it
out fast.
-
County Court Judgements - Explain them or they'll be
discovered during due diligence.
-
Assumptions about use of code which come unstuck after
an investor gets involved - get any agreements sorted
first.
If your project has any element of software design or
use it is vital to ensure that:
-
If you made it you've got the rights to it. Perhaps the
idea came to you at work and your ex-employer has a claim
over it. Perhaps your previous buisness partner has a
stake. Worst of all, perhaps it isn't clear.
-
Your competitors have at best a worse right to its use,
at worst the same right to its use.
-
If you need to buy it in you have permission to. This
is important as many technologies are distributed on an
exclusive basis and just as your competiton will try to
secure such an arrangement, so you should try for exclusivity
yourself.
Oh yes, just to save a lot of time rebranding your idea,
yup, its that old chestnut...are your intellectual property
rights being infringed by misuse of the domain name system?
Or haven't you bothered yet?
Why?
One of the first questions you will be asked is whether you
have the IPR, or "intellectual property rights"
to any code upon which you are relying. The last thing an
investor wants is any legal hiccup, particularaly if you intend
to go for a float long term. The stakes are enourmous and
the better your idea the more incentive there is for an infringment.
Don't rely on friendly or vague arrangements. As one Cisco
millionaire told us "its disgusting what people will
do when money starts pouring into a company. It actually shocked
me, it was like nothing which had gone before was the truth."
Secondly, any contracts which the firm holds will influence
the investment decision. This obviously includes any prior
funding arrangements. Check EVERYTHING very carefully and
if there is a problem an understanding funder or go-between
will sort it out. Even CCJ's aren't a problem.
How?
Simple. Call in a lawyer. It is almost impossible to do it
yourself unfortunatly as the area is fraught with legalese
and beyond the scope of all but the best lawyers. Normally
we wouldn't give them an inch but in this instance it really
is vital, especially when the code is complex, or worse when
it seems like such an "obvious idea". If you have
a contract look for the following common mistakes:
Lack of consideration. An old trick. If no money changes
hands, and no benefit passes between BOTH parties as a result
of the deal, the contract is void for no consideration. It
just means no meaningful exchange has taken place. Even nominal
fees or consideration may validate such a contract. This is
why you see things change hands for ridiculous fees like "$1"
for a company.
Your definition of what is involved in the agreement.
If you use terms which are too narrow, for example if
you are planning a site for doctors, nurses and medicine and
you say that the contract is to govern the production of "medicine"
sites, many medical fields could arguably be excluded.
Upfront fees. An old scam. Taking upfront fees to
obtain funding and then making certain that you don't meet
criteria set out in the contract to void an agreement with
a heavy fee penalty payable to the "fixer" has many
guises but the intent is always the same. Avoid like the plague.
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