This entrepreneur has a business idea which he believes will be profitable. He is not sure who to talk to or how to go about starting up a business based on his idea. He asks if it is possible to secure a patent or other protection to prevent others from taking his idea.
This is a common situation for many would-be entrepreneurs with a great business idea. To develop the idea, service providers and funders must be approached and this brings a risk of someone using the idea.
Intellectual property protection through patents, designs or copyright may provide some of the answer, but are not always applicable.
For instance a patent applies to something that can be represented by a drawing, model or prototype. It must be new and involve an inventive step. Patents do not apply to computer programs and the presentation of information. Copyright covers written or artistic works and images, but not the ideas underlying them. A legal action against a patent infringer is likely to cost hundreds of thousands of rands, and could take years to complete.
Davis Gilson, a partner at intellectual property law firm Spoor & Fisher suggests that a good option is to register a company name which describes the product or concept as explicitly as possible, and then to register the name as a trademark.
This will limit imitators from passing themselves off as this company. Gilson suggests that entrepreneurs who are uncertain of what protection is available for their idea should approach an appropriate
intellectual property specialist for an initial chat, which could be inexpensive or even free.
In this case the entrepreneur has a creative idea for an Internet-based business, and would probably not be able to rely on patent protection. Nevertheless there are some steps he could take:
- Deal with trustworthy suppliers. Established financiers and advertising agencies hear thousands of ideas and respect confidentiality. So do many other service providers. Check references carefully before choosing, especially their clients who had new ideas.
- Use a Non-Disclosure Agreement. There are plenty of free templates on the Internet, but he must be sure they are correct for South African law. Banks and financial houses will generally not sign these, but for developers, resellers and technical service providers they are routinely used.
- Do it yourself. Entrepreneurs are often too quick to involve financiers and service providers. Starting small and using family finance may be better. Equally, learning how to manage the unknown is not as difficult as it seems. We live in this wonderful age of blogs, advice forums, eBooks, webinars and other educational and knowledge sharing facilities.
The best option
Hiding ideas from the world at large is extremely difficult to do, and even if the entrepreneur is successful in keeping confidentiality until launch, once he puts it on a website he exposes the idea to around two billion people. And yet there are many creative websites, services and products launched by entrepreneurs and not copied by others.
A key step in achieving this status is to launch with immediate benefits to consumers. If it is a website it needs to have a lot of content so that the innovative idea becomes immediately useful to consumers and develops a loyal following. Two very different ideas, the Cape Town Waterfront, and the consumer website Hellopeter.com were wonderfully creative ideas that became leaders in their class. They, like all similar success stories, offered immediate benefits and innovation, and became top of mind market leaders. First mover advantage, if well used, is probably the very best form of protection. Consumers who love and respect the product or service are unlikely to switch.
All this means sound business practices with good planning, a clear understanding of where customers and profit will come from, measurable milestones and a great launch strategy. This should be true for all new businesses. Secure and loyal customers, gaining good value, are the best protection of all.
Why Protecting Your IP Might Be The Most Important Thing You Can Do
What’s the worst that can happen if you do not protect your company’s intellectual property? Worst case scenario — you can lose everything you’ve worked so hard to build.
In the context of a cut-throat business world, the naivety of a first-time entrepreneur or SME owner can often lead to dire consequences for the entrepreneur’s business. If intellectual property is not adequately protected, ownership in, and to, it can be lost in its entirety, or it was never actually owned at all in certain circumstances. This can leave an entrepreneur with an empty shell of an entity, gutted of its most important innards, no longer able to operate efficiently, effectively, or at all.
This article explores some of the worst consequences of what may happen should a business not effectively protect their intellectual property.
1. Think you own the copyright to the logo, website or app you outsourced? Think again
If you are like most business owners out there with a tech idea, but no ability to bring the technological aspects to life because you are a non-technical founder, you may use the services of an outsourced software development agency. Watch out!
By default, works created from tasks like these are the subject of a copyright, such as the look and feel of a website, or the source code comprising it. In addition, aspects such as logo design, outsourced blog and content articles, as well as technical drawings are all the subject of a copyright which, if outsourced to an independent contractor, are, by default, owned by the independent contractor.
So what does the above mean? Well, in the case of you outsourcing the development of your new Uber for X concept, should you and your developer ever get into a spat, the developer can effectively hold you ransom as he owns the rights to ‘your’ software.
This will only change if you make your independent contractor sign a written Assignment of Copyright Agreement, which transfers the rights back to you.
Luckily, Legal Legends offer a free downloadable version of the Assignment of Copyright Agreement, which can be found here:
2. Have you been funded by a government programme? That could mean the government owns the right to your IP
Although not yet brought into law, should the Copyright Amendment Bill 2017 be enacted in its current form, you will not own the copyright to any of your works which are funded by government. These copyrighted works will be owned by government along with, by default, the Guptas, and a Copyright Assignment Agreement will not change this state of affairs. So, watch out government fundees!
3. What’s to stop another entity from using your business name to ride your coattails?
You probably assume that by reserving your company name and registering your company, you own the exclusive rights to the use of your company name. You are wrong!
By securing a company name, all you do is prevent another company from registering a confusingly similar company name to yours. This does not mean that a sole proprietor, partnership or other entity (other than a company) can’t utilise a similar name to yours, or that someone else out there who has been using a very similar name to yours for many years, can’t continue using it. On the contrary, if that person has registered the name as a trademark, they could potentially force you to change your company name.
So, what is the solution? Ensure that when you register your company, reserve both the company name and register the name as a trademark.
4. Protect your invention from the dangers of the public domain
Let’s say you’ve invented a new kind of superconductive metal, or an incredible new propulsion mechanism that could get us to Mars at 99,9% the speed of light, you most likely will have a patentable invention on your hands.
Most businesses do not realise that as soon as a patentable invention is placed in the public domain before it has been registered as a patent, it voids any potential registration as a patent, and hence can be copied by anyone with a brain.
Solution? If you feel you have a patentable invention on your hands, speak to a patent attorney about the possibility of filing the patent before you go to market or make it available to the public.
5. Are your trade secrets at risk?
Although copyrights, trademarks and patents provide certain protective measures outside of any contracts, for all other aspects of intellectual property that cannot find protection in the above, such as trade secrets, you are not protected. This means that going into a meeting and disclosing your Uber for X concept to any person with a keen ear, could result in their copying your concept and using it for themselves.
A trade secret may exist where, for example, you are a master wheel builder of high performance cycling wheels fit for a peloton on the Tour de France. In this instance, your components for the wheels are sourced from suppliers all over the globe. Knowledge and access to these sources by others could result in them exploiting your suppliers and competing with you. Hence, this is your trade secret.
Entering into an agreement with whomever may have access to your trade secrets, binding them to confidentiality and not disclosing such trade secrets, and further binding them to not compete with you, will protect you from exploitation in the long term.
What You Should Know About Copyrights For Your Business
Your business and how the proposed amendments to copyright laws will affect it.
For those of you who run your own business, whether you are aware of it or not, copyrights are a primary mechanism to protect your intellectual property. For example, whether you are writing a blog post, designing a logo, writing the source code of a computer programme, or creating a piece of music, all these works are subject to a copyright. A copyright does not need to be registered in South Africa, but arises automatically upon its creation, preventing others from copying the contents of what you’ve created.
Copyrights can provide a very useful means to ensure that others don’t unlawfully compete with you, and can also be licensed for royalties. With the plethora of technological developments of the past decade or more, copyright legislation is fundamentally in need of an update.
The 2017 Copyright Amendment Bill recently published by the Department of Trade and Industry for comment, has been widely criticised.
Related: How to Register a Copyright
We’ve set out some of the proposed amendments that we believe to be unfair, lacking common logic, or that may affect your business if the 2017 bill becomes law.
Copyrights funded by the State
One of the most contentious introductions is the advent of state-funded copyrights. The bill stipulates that the state will own all copyrights it has funded, but does not define what it terms as ‘funded’. Accordingly, this may include grants, subsidies, loans, tax incentives, equity investments and the like.
Further, the bill does not set any minimum threshold to constitute state funded. This could mean that if the state provided 0,5% of the capital required to develop software, or certain educational course content, it would own copyrights flowing from the works.
The state is not permitted, by way of contract, to transfer back the copyright to the person who obtained the funding from the state. Contracts are the primary mechanism by which copyrights are transferred under the current Act.
With the Department of Trade and Industry introducing some great funding initiatives for start-ups, the risk is obvious in that any start-up that is part funded by the Department of Trade and Industry would not own the copyright to anything created as a result of that funding.
Should private investors be looking to provide a company with any later stage funding, a simple due diligence would reveal that the company simply does not own any of its ‘own’ copyrights. This would discourage most investors, which could curtail private funding for businesses that were initially state funded. These businesses are primarily owned and run by previously disadvantaged individuals, and hence, may have the effect of further curtailing transformation in our fragile economy.
The 25-year assignment
In a previous article, we touched on the fact that independent contractors tend to own the copyright to works they create on behalf of businesses (think outsourced web development and logo creation). Under the current law, independent contractors may permanently transfer a copyright, by written agreement, back to the company that instructed them to perform the work.
The 2017 bill proposes a 25-year limit on this transfer. Unless you are the independent contractor creating copyrighted works on behalf of others, this provision is severely prejudicial to most businesses that tend to outsource a number of their works. An independent contractor may assign the copyright back to the business that outsourced the work, however, the copyright will automatically revert to the independent contractor after 25 years.
If you’re looking to sell your business, or raise funding, for example, the value of your business is inextricably linked to the intellectual property owned by it, such as copyrights, trademarks, and the like. With your business lacking the ability to retain a copyright that was assigned to it beyond 25 years, this could detrimentally impact the valuation of your business.
Unenforceable contractual provisions
As mentioned above, copyright assignment agreements are currently used to ensure that copyrights have been validly assigned from an independent contractor — for example, back to the company that outsourced the work. The 2017 bill provides that any contract that purports to take away a right, prevent or restrict any act in terms of the bill will be invalid and unenforceable. This means that, for example, a copyright assignment agreement, as mentioned above, would be void.
While the bill is not law yet, there could be far-reaching and detrimental impacts to your business should it become law. One can only hope, for the sake of our entrepreneurial community, that the concerns we raise are heeded, and the bill amended.
If proposed copywrite amendments are passed, it could severely impact the valuation of businesses going forward. Have a look at Legal Legend’s free copywrite assessment.
What’s Setting You Apart From Your Competitors?
Tick these boxes and you’ll attract funding attention. An investor is interested in two things — what are the barriers to entry in your industry, and can you keep potential competitors out of your market?
“There are only two ways to establish competitive advantage: Do things better than others or do them differently.” — Karl Albrecht, German entrepreneur and 2nd richest man in Germany.
Getting a start-up company on its feet can be a very daunting task. There might be many big dogs out there that potentially threaten a start-up business. Competition is healthy, but it could also be costly and catastrophic for a fledgling business.
Who are you?
Before a start-up company enters the marketplace, guns blazing, it’s important for the company to first know itself. By knowing your company it creates surety and confidence in the team, which in turn directly reflects on potential investors.
Start-ups should therefore consider what makes them unique in terms of their products and/or services, who the target market is, who the competitors are, what their strategy is and whether they have a suitable team to meet the company’s requirements.
One mechanism by which a company can gain a massive head start from their competition and solidify their position in the market is through the strategic use of intellectual property. Intellectual property provides a mechanism by which exclusive rights can be obtained to specific goods or services that the start-up has developed.
Should your company be in the business of exploiting niches in the industry, intellectual property will enable you to solidify the unique value proposition you provide through your services or goods offering.
A start-up that creates a product or service that is not easy to replicate, obtains absolute ownership over how and when that product or service is replicated (through the strategic use of intellectual property) and creates a long-standing network that leads to a sustainable competitive advantage.
A start-up should make use of these legal tools that are available and build their own ‘Great Wall of China’ by being defensible. This automatically turns the competitors into inferiors.
Another aspect of perhaps equal importance is a company’s reputation. A start-up’s reputation lies in its product and/or service. If a company produces or delivers a poor or disappointing product or service, this mirrors the company itself and detrimentally affects its reputation. Reputation is everything, it’s invaluable and ever-lasting.
Maintain your reputation
In order to improve an undesirable reputation, the focus should be on strategic planning. A successful start-up has a strategy in place that includes a detailed business plan and model. An eager, ambitious and fruitful strategic plan is also a favourable indication to potential investors.
By keeping up with the competitors and maintaining a desirable reputation, a start-up has already laid down its roots and can only grow upward.
It’s important to identify the target market as it is beneficial to obtain feedback from clients and customers in order to establish your reputation and status, and build on it.
Know your competition
Further, and most importantly, it’s paramount to know your competitors. By knowing your competitors you learn from their weaknesses and build and improve on their strengths. Investors can observe a start-up’s comparativeness by considering whether it’s ‘a step ahead’ and whether it keeps up with, and creates, trends.
A start-up may identify and better their views on their target market and competitors by placing themselves in the shoes of a customer or client. More specifically, by considering and evaluating the positive and negative aspects and experiences the customer will experience when engaging with the start-up, and acting on insights gained.
An investor is likely to have a similar mindset to a potential customer or client and can provide a start-up with a differentiation factor that sets it apart from others in the industry.
Related: 5 Steps To Protecting Your IP
The future is yours
It’s also important to keep in mind that a start-up is not generally only novel but it’s young and formless, a mere piece of clay that may be formed into anything. Start-ups should use these strengths as advantages in developing an outstandingly unique and unforgettable business.
Additionally, start-ups do not necessarily have the overheads that many competitors might have. A start-up can therefore provide products and deliver services more flexibly, which is a magnet for customers.
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