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Intellectual Property

Think Before you Share

Understand your rights before you share your IP.

Amos Khumalo

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The background to the recent decision by the Advertising Standards Authority (ASA) to uphold a complaint by Frankie’s Olde Soft Drink Company (“Frankie’s”) that Woolworths misappropriated the ‘advertising property’ in its strapline “Good Olde Fashioned Soft Drinks” has some very important lessons for businesses regarding the sharing of business information with potential business partners.

To refresh your memory, Frankie’s had approached Woolworths with a business proposal for Woolworths to stock the Frankie’s range of soft drinks. The proposal was rejected; however, a year or so later Woolworths launched its own range of products that had a marked similarity with the Frankie’s products, including the strapline “Good Olde Fashioned Soft Drinks.” Sound familiar?

Many businesses and entrepreneurs have been victims of this practice, but have not been as fortunate as Frankie’s in retrieving their intellectual property rights / business ideas from the clutches of some big companies to which they had disclosed their business concepts / ideas.

Protecting your rights

Here are some pointers regarding what you can do to protect your business ideas that might not be eligible for protection as a patent, trademarks or ‘advertising property’ under the ASA Code of Advertising Practice. The tool to use is an agreement known as a Non-Disclosure Agreement (also known as a Secrecy Agreement or Confidentiality Agreement), which must contain at least the following:

  1. A clear description of the confidential information / business idea / concept that you would like to disclose;
  2. Clarification of the purpose for which the disclosure is made – eg. “evaluation of a possible business opportunity ONLY,” “exploring a potential business opportunity between the Parties ONLY,” etc.
  3. The disclosure period – for how long the recipient company is authorised to use the disclosed concept / information;
  4. The obligation on the recipient company to return the confidential information at the end of the disclosure period, alternatively, the recipient company must undertake to destroy the confidential information and provide proof of such destruction;
  5. Non-circumvention – the receiving company must undertake that it will only exploit the concept / business opportunity with you, the discloser;
  6. Confidentiality Term – the agreement must either provide that the recipient will respect the confidentiality of the information indefinitely or for a defined period, such as 5 years. If you are the discloser, you would naturally want the confidentiality term to be as long as possible, however, you may have to  settle on a period of 3 or 5 years, as a compromise;
  7. Remedies for breach – your agreement must indicate penalties (e.g. damages) to be borne by the recipient company in the event that they breach the confidentiality obligations. But you can expect the recipient company to push back and require that you either remove such a clause or that you cap the damages at a pre-determined amount, which is reasonable as any party that enters into an agreement would want to limit its exposure to damages.

Balancing risk with reward

The reality though is that often times some business partners simply refuse to sign NDAs; it is not unusual for them to require you to make the disclosure first, after which they will determine whether or not to sign the NDA. This is a difficult position in which to find yourself, and may require you to make a call whether to take the risk and disclose the information or walk away.

Here are a couple of practical steps that you might wish to consider:

  1. Walk away, especially if you do not trust the ethical standing of the other party. NB the fact that you are dealing with a listed / well known company, regrettably, does not count for much – just ask Frankie’s!
  2. Persuade them to sign the NDA on the understanding that the confidentiality obligations will not extend to any information that they can objectively prove was known to them or within their possession prior to signing the NDA with you.
  3. If the company concerned is insistent that they are not prepared to sign the NDA and you really want to pitch for their business, indicate to them that as far as you are concerned, the information / business concept is your intellectual property and confidential and that it is being disclosed for the limited purpose of enabling them to evaluate your concept / information; further, clarify that should they decide not to proceed with / exploit the concept they shall return the information to you and shall not retain a copy of the concept / information. On the other hand, should they decide to proceed with the exploitation of the concept, they will do so only with your company. Thereafter, confirm all of this in writing.

One further bit of advice: always have a business partner / colleague with you during meetings to discuss such agreements – so you have a third party that can act as a witness should this be necessary in the future. Finally, have your NDA drafted / checked by a lawyer that is experienced in intellectual property law matters – the days when business partners could be trusted to have “good olde fashioned” ethics are long gone.

Amos Khumalo is the co-founder and senior director of Amos Khumalo Incorporated. He is an attorney, notary, conveyancer and specialist Intellectual Property Practitioner, and was the first black person in the country to qualify as an Intellectual Property Practitioner under the auspices of the SA Institute of Intellectual Property Law. Having been admitted as an attorney in 1997, Amos has an excess of 15 years experience in the legal field. He also opened the first black-owned Intellectual Property Law practice in the country in 2001. For more information visit www.akinc.co.za or email amos.khumalo@akinc.co.za.

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Intellectual Property

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.

Kyle Torrington

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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.

Related: Massive Alliance Offers Start-ups Advice On Safeguarding Intellectual Property

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.

Related: The Role Of Intellectual Property In Your Business

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.

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Intellectual Property

What You Should Know About Copyrights For Your Business

Your business and how the proposed amendments to copyright laws will affect it.

Kyle Torrington

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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.

Related: 5 Common Legal Mistakes Start-Ups Make – And How To Avoid Them

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.

Future rewards

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

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Intellectual Property

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?

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“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.

Related: Massive Alliance Offers Start-ups Advice On Safeguarding Intellectual Property

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.

Defensible differentiators

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.

Related: The Role Of Intellectual Property In Your Business

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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