Ioannis
Iglezakis, Assistant Professor,
Aristotle
University
A. Introduction
At present there is a
growing number of start-ups, and some of them in the high technology sector are
valued at 1 billion dollars or more.[1]
In a startup, Intellectual Property (IP) or intangible assets are often
more than 90% of the value of the company and that is not limited to patents,
of course.[2] A company that does not
develop any IP will find it hard to attract investors, since IP provides them
security and leverage. IP also helps companies to secure financing, using IP as
collateral.[3]
As it is evident, the legal protection of IP rights is of paramount
importance for a start-up, to protect its assets and maintain a competitive
advantage. It needs, therefore, to be ensured that the company has exclusive
rights to its IP and is not using technology or other assets (e.g. trademarks) belonging
to competitors. It should also be confirmed that the company’s IP rights are legally
protected with appropriate licenses.
B. Intellectual Property
Intellectual Property protects applications of ideas and information that
are of commercial value.[4] There are various types of
rights which are included in IP, but the main categories of this branch of law
are two: copyright and industrial property. Certainly, the most important types
of IP used by start-ups are patents, copyrights, trademarks, and trade secrets.
National laws protecting IPR vary among different countries, so we will
describe the laws of Greece and the EU in this area.
1. Patents
Patents are granted in respect of inventions which are new, which involve
an inventive step and which are susceptible of industrial application (article
5 of Law 1733/87 as amended). In Europe, patents are issued by the state or a
national patent office after a substantial examination of their validity, the
duration of the validity of the patent is twenty years from application; and
the invention should be publicly described in the patent specification.[5]
Patents afford a right to their owner to prevent others from using the
invention for the duration of the patent. Thus, it is the strongest means of
protection of all IP and may lead competitors in peril, if they use an
invention for which a patent was granted. Therefore, a start-up should proceed
to a clearance search in the patent office and to see whether a product that it
develops is not already patented.
Patent protection is particularly important for a start-up to protect its
business and its invention from competitors and simultaneously, and to avoid
the risk of facing claims of patent infringement by competitors and third
parties.[6]
Software may not benefit from the rigid protection of patent law under
Greek law, which provides that computer programs shall not be regarded as
inventions (Article 5 (2)(c) of Law 1733/87). This is line with Article 52 of
the European Patent Convention which excludes from patentability programs for
computers as such. However, this wording gave grounds to grant a patent for
software
However, the European Patent Office grants patents for computer programs,
if they provide a technical contribution to prior, that is, a further technical
effect that goes beyond the normal physical interaction between the program and
the computer. Examples include a reduced memory access time, a better control
of a robotic arm, etc.
2. Copyright
Copyright grants protection to authors, artists and other creators for
their literary and artistic creations, commonly referred to as works. The
requirement for granting protecting is that a work is original. In case of
computer software the standard for originality is very low. According to
Article 1 (3) of Directive 2009/24, a computer program shall be protected if it
is original in the sense that it is the author’s own intellectual creation.
In contrast to patents, copyright-protected works are not required to be
registered with a state authority. Copyright is afforded when a work is
created, but it is hard to prove authorship. Copyright gives the owner or
licensee the exclusive right to reproduce, distribute, modify, publicly perform
and publicly display a work.
In contrast to patents, copyright protects the expressions of an idea, not
the idea or a concept. Thus, the source code of a computer program is eligible
of copyright protection, but not the algorithm or the abstract idea or
mathematical method on which it is based.
3. Trademark
Trademarks are distinctive signs, i.e. words, names, symbols, slogans,
etc., that identify certain goods or services produced or provided by a
company. A trademark when associated
with a successful product or service it becomes an asset or prime value to a
company.[7] An outstanding example is the
word ‘Google’ for Internet searching, the bitten apple logo for computers, etc.
Their protection stands as long as they are used and they may continue to be
used forever, as there is no limit on the duration of this right.
Under Greek Law, protection is afforded to registered trademarks and also
to non-registered trademarks, i.e. to distinctive signs.
Trademark law prevents third parties from using a trademark which is
confusingly similar to the trademark of a start-up.
4. Trade secrets
The law also affords protection to trade secrets, i.e., secret business
information, technological know-how, ideas for new products and markets,
information about customers, finance, etc.[8] Examples of trade secrets in
the high tech area include customer lists, source code, semiconductor
manufacturing processes, etc.[9]
Protection of trade secrets is granted by provisions of unfair competition
law in Greece, while in common law countries it takes the form of sui generis
protection. The said protection is rather limited, since it prohibits the
misappropriation of trade secrets, which leaves certain acts, such as reverse
engineering, unpunished.
C. Specific Issues
Something that happens very often is
that IPR are developed by the founders before the establishment of a start-up
or contractors after its establishment. Generally, in such cases a license
should be granted, otherwise rights are not transferred to the start-up, with
the exception of software or an invention developed by an employee, which under
Greek law are owned by the employer. The failure of a license may lead to legal
disputes.
Another problem which may occur is the lack of a strategy for patent
protection of products or services. Many start-ups do not file for patent
registration due to ignorance of the advantages offered by such protection or
simply, because of indifference. Under Greek law (Article 5 of Act 1733/1987)
and law in most countries patent protection is not granted for an invention
that has been public disclosed, e.g. when a technical paper has been published
or the invention was demonstrated at a trade show, with the exception of
recognized exhibitions. Disclosing an idea to the public should be carefully
planned, because the risk is eminent that rights to file a patent and to
protect trade secret may not be enforceable, since patent law requires that an
invention is new and not made public, while to claim right on trade secrets
requires that the start-up has taken appropriate measures to keep business
information secret.
Trademarks may be valuable for start-ups, so their selection should be
carefully planned. A generic trademark, e.g. eshop.gr, may be ‘catchy’, but
could also turn out to be descriptive and lose the ability for protection.
The use of an infringing trademark could lead to a costly litigation that
may worsen the financial situation of the start-up. The cost of changing a logo
may also be very high and inhibiting development. Therefore, a search in the
trademark office and in a search engine should be carried out, to ensure that a
trademark used by the start-up does not infringe third parties rights.
Errors in licensing may prove devastating. An IP license from a third party
with a narrow field of use may require renegotiation as the start-up’s products
evolve. In that case, the third party can charge a premium for the expansion of
the field of use. So, e.g. in copyright law the rule is that a license is not
valid for future methods of exploitation.
Similarly, the license to use a third party’s IP should foresee or not
preclude the case of a merger; otherwise the merger may fail, as it will miss
important assets.
The licensing of a start-up’s own IP should be carefully reviewed, so that
the start-up may tie-up fields of use not exploited by the license in order to
exploit its technology; and also to grant non-exclusive licenses so that it
would not be prevented from using its own technology.
A big risk for a start-up is the use of trade secrets or other confidential
information or IP by the founders of the start-up from a prior employer. A
lawsuit against the start-up will hinder the functioning of the company, which
may be liable to pay compensation and their founders be subject to criminal
liability.
Software development is increasingly based on open software products and
many start-ups owe their success to its use. However, open source licenses such
as the General Public License require that companies using open source software
licensed under the GPL must make available source code of the start-up’s
software to its licensees and to permit such licensees to modify and
redistribute the start-up’s software without charge to third parties. This
viral effect of open software has its price: a start-up may find it hard to
find investors or sell assets, since investors and acquiring companies demand
that no such software is included in the relevant agreements.
Conclusion
To sum up, I would like to stress the following points:
- A start-up should exercise due diligence with regard to choosing a trademark or brand name, because this can come to be a valuable asset of the company. Therefore, before adopting a trademark or a brand name one needs to conduct a search in a trademark database, such as the TMview[10], and a search for a brand name in a database, such as the geminet.gr in Greece.[11]
- To ensure that the IP rights of the start-up are protected, contractual agreements should be signed with all contributors to the creation of an invention or software, excluding employees. These agreements should provide for the transfer of IP rights to the company. In addition, non-disclosure agreements should be agreed upon with co-founders of the start-up, employees, consultants and others, to establish trade secrets protection.
- To avoid losing patentability an invention should not be publicly disclosed. According to patent law, an application for a patent may be dismissed if there has been prior use or public disclosure of the invention.
- To protect trade secrets do not disclose essential details of developed technologies and innovations.
REFERENCES:
Cornish & Llwelyn, Intellectual Property: Patents, Copyright, Trade
Marks and Allied rights, 2007
DLA Piper, Intellectual Property: Critical issues, http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=367&
Johnson, A., Intellectual
Property for Startups in the Real World, http://gust.com/blog/2012/01/04/ip-startups-real-world/
Juetten, M., Protect Your Intellectual Property -- Before It's Too Late http://www.forbes.com/sites/groupthink/2014/06/03/protect-your-intellectual-property-before-its-too-late/
Kasdan, M. J., Esq. and
Zemsky, R. P., Esq., Intellectual property for startups, http://www.ey.com/GL/en/Services/Strategic-Growth-Markets/Center-for-Entrepreneurship-and-Innovation---Intellectual-property-for-startups
Kaviar, E. G. J., Five Intellectual Property “Landmines” Startups Face, http://www.wolfgreenfield.com/files/kaviar__5_intellectual_property_landmines_startups_face_copy1.pdf
Rajabali, A., Three
Intellectual Property Issues that Startup Founders Can Avoid, online available
at: http://startupcalgary.ca/2014/01/three-intellectual-property-issues-that-startup-founders-can-avoid/
[1] A Billion-Dollar Club, and Not So Exclusive, The New York Times, http://www.nytimes.com/2013/02/05/technology/growing-numbers-of-start-ups-are-worth-a-billion-dollars.html
[2]. M. Juetten, Protect Your Intellectual Property -- Before It's Too Late http://www.forbes.com/sites/groupthink/2014/06/03/protect-your-intellectual-property-before-its-too-late/
[3] E. G. J. Kaviar,
Five Intellectual Property “Landmines” Startups Face, http://www.wolfgreenfield.com/files/kaviar__5_intellectual_property_landmines_startups_face_copy1.pdf
[4] Cornish &
Llwelyn, Intellectual Property: Patents, Copyright, Trade Marks and Allied
rights, 2007, at 6.
[5] Cornish &
Llwelyn, at 7.
[6] Kasdan et al, Intellectual
property for startups.
[7] Cornish &
Llwelyn, at 9.
[8] Cornish &
Llwelyn, at 10.
[9] DLA Piper,
Intellectual Property: Critical issues.
[10] For Greece see https://www.tmdn.org/tmview/welcome.html?lang=el
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