Selling your start-up? Is your IP in order?
When you sell a start-up, you are selling your business. The business that started as an idea on the back of a napkin. The business that you have grown and nurtured (not without blood, sweat and tears) and now you are ready to sell. It’s time for that napkin to start paying dividends.
Selling a start-up is much more personal than spinning off a subsidiary of a larger corporation: you care deeply about doing the right thing by your business as well as getting the best price; and your pockets for legal fees aren’t limitless. One easy way to reduce your legal spend is to get ahead, and get your intellectual property in order before you start the sale process.
You may think that IP doesn’t really apply to your business. Even if you don’t have hundreds of registered trade marks or patents, consider where value of your company lies. If it is in the technology it produces, the drugs it generates, the brand it trades under or the novel products it puts out, you need to be giving IP some thought. Spending a bit of time ensuring you have protected those assets not only showcases your start-up in the best light to a prospective purchaser, it also saves on legal fees as your transaction lawyers won’t need to tidy up as they go.
My top five tips for getting your IP in order are:
- Employee creations: who creates the amazing new widgets that you sell or the software that you rely on? Typically either your employees or third party contractors do. Make sure you have robust provisions in all employees and third party contractor agreements, assigning all IP in anything they create to your company. Technology start-ups often work with software engineers who are increasingly based remotely, scattered around the world. To avoid having to delve into local employment laws you need to be really clear whether these people are employees or third party contractors, and who owns the software that they create.
- Use of open source software: if your start-up relies on bespoke software, make sure you know whether that software incorporates any open source components. Ensuring your coders document use of open source will avoid having to run an expensive open source scan. Depending on the licence any open source is used under, a purchaser may require you to re-write your code to carve any open source out.
- Brand: all companies trade under a brand. It’s the name of the company, its logo, the name of its key products, its strapline. You need to protect that brand both to stop third parties from using it, and to ensure no third parties can come after you saying that they started using something similar first. You should have registered trade marks for the name and logo of your company, and for any key products in the most important countries that you operate in. Registering a trade mark is quick and inexpensive, and is a basic requirement whether you are thinking of selling or not.
- Trade secrets: you may own information that has commercial value but that is not protected by a specific IP right, and therefore only retains its value if it is kept secret. Ensure you have appropriate non-disclosure agreements in place with key employees and with any third parties who use that information. You will also want to be confident that you have appropriate measures in place to defend against hacking.
- Data: not strictly an intellectual property right, but given data is the new currency it would be remiss of me not to mention it. Everyone using data needs to be accountable. Make sure you are aware of your data protection obligations – fines under GDPR for non-compliance can be up to the greater of 4% of annual global turnover or €20 million.
I have been involved on transactions with start-ups at both ends of the spectrum, from those with immaculate IP portfolios to those that had never given IP a second thought. Wherever your company sits on that spectrum, I urge you to give the above five areas a little thought. The more you can get your house in order now, the smoother the transaction process will be.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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