Incorporation And IP: What To Ask Your Legal Team

Incorporation and IP are closely linked aspects that every entrepreneur must figure out with the assistance of their legal teams. Intellectual property (IP) is a part of almost every business big or small, and when you are incorporating your business you have to take steps to protect your IP. Contrary to common beliefs, intellectual property is not exclusive to large companies. An IP strategy has become almost essential in today’s business world.

However, it is not uncommon for founders to get caught up in other matters when forming a business including investment, marketing, supply chain, etc, and put IP issues on the back burner. Ignoring intellectual property and failing to take steps to secure it can lead to issues down the road.

Protecting intellectual property is as important as securing other tangible assets of your startup, and your legal team can help you protect it and make sure you can utilize your IP to its full capacity. Believe it or not, there are many threats that can put your company’s intellectual property at risk.

With that said, a lot of startup owners are still not sure about what IP is, what type of IP they might own, and what steps they need to take to protect it. In addition, there are many complications about the ownership of the intellectual property that every startup owner needs to know about. This article will help you answer all your IP-related questions when incorporating your business. Most importantly, we will also list down some intellectual property-related questions that you should ask your legal team when forming your company, so keep reading.

Incorporating your business and securing IP starts at the time when you’re evaluating a business idea. Check out this video where I explain how to test your idea for viability before starting the business.

What exactly is intellectual property for a business?

In the most basic form, intellectual property is any intangible creation or idea that a startup might own. A startup can legally protect these ideas or intangible assets from unauthorized use and outsiders can’t use or access or implement this IP without the owner’s permission. So when we talk about intellectual property protection, it means that we should give a similar level of protection to both physical and intangible assets (IP).

There are no rules that have to be followed when creating intellectual property for your business. For the most part, it is up to you as the owner of the IP to decide whether an idea that counts as IP should be converted to an invention, get shared with others, or if you want to keep the idea a secret.

In short, Intellectual property is a general term, and intellectual property covers a whole range of non-material assets, such as assets that are intangible or that lack a physical nature. The most common types of intellectual properties are a trademark, patent, or copyright, and we will discuss these common IP types in detail in the next section of the article. There are lots of times when issues pertaining to intellectual property are only brought to light during an investment round or acquisition. By that time it may be too late for startup and the problems may be irreversible. You can, however, minimize the risks by staying aware of the common issues related to intellectual property and implementing the knowledge you will learn while reading this article. You’ll also learn how to initiate incorporation and IP protection procedures.

What are some common types of intellectual property that a startup may own?

As mentioned in the previous section, IP can be of various types, however, there are certain types of intellectual property that are owned by almost every startup. So without further ado, here is a list of all the common types of intellectual property that you might come across during the incorporation process:

Copyrights

Copyright refers to the ownership of ideas, art, photographs, architecture, and even computer programs, among other things, under intellectual property laws. As one of the most potent and powerful forms of intellectual property, copyright grants its creators and authors the exclusive right to use, copy, and duplicate their original material. You have the right to copyright a piece of work that you have created for your organization and do not want others to copy it without your permission. As a result, if people want to use, reuse, or repurpose any of your work, they must first contact you for permission to use it, credit you as the owner, and use it for any of your approved purposes.

As far as copyright law is concerned, there is an exception, which is fair use. In certain cases, you may grant someone permission to use a portion of the copyrighted work you have created for educational, parody, commentary, or news purposes. However, it is important to remember that copyrights do not protect the ideas themselves, only the expression of them. If copyright is applied to a particular item other entities can still make their own versions of the same item.

Patents

Patents are property rights granted by a government agency to an inventor. By obtaining a patent, you will be able to protect your inventions and business from competitors, as well as eliminate the threat of third-party patent infringement accusations. Patents generally last for 20 years from the date the inventor files with the US government to patent their invention. It is possible to patent almost any new and useful process, machine, manufacture, or composition of matter, as well as all useful improvements to existing technology.

To take a new product to market, you would first need to patent the idea so no one else can take it and claim it as their own. Startups can benefit from this since a unique idea is usually their selling point. You will get a patent to protect your idea, provided the government agrees that it is original, unique, and useful. Then you can get people to buy your idea, sell it, or bring it to investors without worrying about them stealing it.

With that said, not all products need to be patented despite the owner thinking that it is unique and patentable. Not to mention simply having an idea of a product will not be enough to get a patent and you will need to put that idea into action in the form of a physical product or a process. You can choose between different types of patents including utility patents or design patents to patent your product correctly.

Trademarks

Trademarks help build brand awareness and business reputation. You can trademark words, symbols, logos, slogans, packaging, or designs to help customers in associating them with your goods or services. There have been many iconic logos that have gained massive popularity with the Apple logo being one of the most popular ones.

Trademarks can become valid from the moment the startup uses the unique symbol. A trademark or service mark can be identified by the symbol ”TM” even without registration. However, the symbol ® is only applicable to registered marks.

So if you are trying to prevent the misuse of any branding symbol, then adding the ”TM” symbol is the most basic form of protection you can get for your business trademarks.

A trademark gives a business owner the tools to stop competitors from taking advantage of the goodwill that their brand has accrued over the years. An unregistered trademark only provides limited protection against copyright or trademark infringement so if you want complete protection for your trademark you will have to register it. Take the time to understand how to work out incorporation and IP side by side.

Trade secrets

The trade secrets of a company are its processes or practices not disclosed to the public and are used to gain an advantage over competitors. Typically, trade secrets are the outcome of a company’s research and development. Almost every successful company out there has a set of trade secrets, KFC’s secret recipe for example, which is a mix of spices. However, the company protects its recipe against outsiders at all times.

If a trade secret gets known by the general public or the competitors, not only can your company lose its advantage, you won’t be able to leverage that competitive edge if everyone knows about it. Now keep in mind that if you are a startup, you need to be extra careful when it comes to guarding your trade secrets. That is because there will be situations where you have to disclose the trade secret with parties such as investors, partners, or private contractors.

The use of non-disclosure agreements (NDAs) is a great way to guard your startup’s trade secrets. An NDA legally binds the party you are sharing the trade secret with to keep the secret to themselves and avoid disclosing it to parties that aren’t a part of the agreement. Trade secrets can include any pieces of information or processes that are not known to the public, such as designs, patterns, recipes, formulas, and proprietary processes.

Businesses use trade secrets to differentiate their offerings by providing something unique to their customers. Recognize that incorporation and IP protection go hand in hand. And check with your legal team on how to handle the processes.

Who might own Intellectual property in a startup?

As a startup trying to figure out how intellectual property needs to be protected, you have to first know who might be the possible owners of the intellectual property associated with your business. You might be surprised to know that not all IP that a company might be using has to belong to the company. Here are some entities within your startup that might own the IP:

Founders

Most founders create, develop, and register IP rights before incorporation so naturally, they own the IP that they created before the incorporation of the startup. Entrepreneurs may have created brand names, software, registered domain names, developed websites, and more. Entrepreneurs are not always employed as consultants or employees. So in ordinary conditions, any information that the founders had created prior to the formulation of the company will not belong to the startup.

Employees

Employees who work for your startup may create intellectual property to support the business. Any such IP that the employee creates during their employment at a startup will be owned by the startup and not the employee as long as the employment agreement specifies it.

Independent contractors

Independent contractors that provide various services to startups may own the IP they create while working for your startup. Unless there is a legally binding contract between the startup and the contractors regarding the ownership of the IP, the IP will usually be owned by the contractors.
Working out the actual ownership is an integral part of the incorporation and IP protection processes.

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What questions should you ask your legal team about IP during the incorporation phase?

Now that you know all the basic information about IP and how it may affect an organization, it is time to answer the big question. What questions should you ask your legal team regarding IP during the incorporation phase? Here is a list of IP related questions that might come in handy during your meeting with legal consultants during the incorporation process:

How can we protect our branding?

As mentioned earlier branding information such as words, symbols, logos, slogans, packaging, or designs are fundamental branding tools. Not to mention these pieces of intellectual property can get stolen and therefore you should always ask your lawyers about what the best course of action to protect your startup’s branding would be. There are situations where simply registering the trademarks to your branding information isn’t enough and your legal team can help you take the necessary steps to protect this knowledge.

What are some risks that our products or services might face when we introduce them to the public?

There is always a risk that the product or service might get copied once you introduce it to the market. So it is important to ask your legal team about the necessary steps that need to be taken to protect the product or service.

What are some industry-specific intellectual property risks?

Each industry poses its own set of threats to the intellectual property of a startup. However, if you know what these risks are beforehand you can take steps to minimize them. Your legal team can help you figure out the potential industry-specific risks to your IP and how to tackle them.

Conclusion

As a startup owner trying to make it into the modern competitive business world you can never be too prepared. By having a legal team by your side and keeping yourself updated with your IP rights, you can make sure your startup can protect itself from potential IP infringements. Work out the incorporation and IP protection under the careful supervision of your legal team.

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