Large parts of commercial businesses in modern economies are technology driven.

The constant number of acquisitions, joint ventures and takeovers in the information technology sector makes the intellectual property an increasingly important topic. Entities participating in the transactions as mentioned above need to protect themselves adequately against being misled or overestimating the value of the transaction. For this reason, they will inevitably need to conduct intellectual property due diligence.

Properly carried out intellectual property due to diligence can be beneficial both to the buyer and the seller. For the purchaser, the results of the proper analysis can be crucial in determining whether or not the transaction is economically viable and in line with the business’ policies and expansion strategies. On the other hand, the seller has an opportunity to compare his or her estimates of the business’ worth with those conducted by the buyer.

Caveat Emptor

Since the doctrine of ‘caveat emptor’ applies to most acquisition transactions it is for the benefit of both parties to properly carry out due diligence. Under the doctrine, the buyer is not able to recover any losses suffered as a result of defects that the seller had not intentionally kept hidden from the purchaser. Therefore, the buyer has to ensure that all facts about the intellectual property are scrutinised. On the other hand, the seller so long as he or she fully cooperates with the buyer and facilitates the buyer’s due diligence does not have to worry about being sued for any post-completion defects.

What to check?

Below you will find a list of essential tips for conducting efficient intellectual property due diligence process. The list is by no means exhaustive, and you should always seek professional advice from legal specialists and accountants before acquiring any business, engaging in joint venture or just entering into an agreement.

Firstly, it is surprisingly common for the buyer to fail to scrutinise basic facts about the intellectual property assets subject to the transaction. Right at the start the buyer should verify the following:

  • Who is the actual owner of the goods in question?
  • Is the asset at issue adequately protected (i.e. not expired)?
  • Is the agreement in question for exclusive or non-exclusive rights?

Secondly, especially when undertaking a full audit during a merger, acquisition, takeover or licensing arrangement where copyright, trademark or patent rights are involved; it is important to at least follow the below checklist:

  • Employ an experienced IP professional who will evaluate the actual value of the IP rights in question. If the estimation does not reflect your expectations discuss it.
  • Fully understand what assets and rights are subject to the transaction.
  • Verify all documentation provided by the seller with particular emphasis on registration documents. Commission an independent professional specialist to verify and confirm the history of the IP rights in question. Ensure that all registration fees have always been paid on time and that at no point has the IP been examined by a third party. It is also important to check for any potential pending disputes and litigation.
  • Request formal disclosure of ownership details for all IP owned by the seller. Check if the seller does not himself or herself own any conflicting intellectual property rights that would put limitations on the acquired IP.
  • Conduct relevant searches to ensure that the IP is not subject to any finance debt arrangements (i.e. subject to the mortgage).
  • For patent rights, it is important to ask for any related patent rights, especially any future improvements to the existing pattern that might have been discovered and subject to patent protection as well.
  • Request details regarding third party interests in the IP in question.

In recent years both the US and the UK, authorities have published troubling data about lack of intellectual property awareness among small business owners. The UK Office of Science and Innovation stated that although corporate institutions were extremely protective and aware of their intellectual property rights, small businesses were lacking in that respect.

The Intellectual Property Office has even launched a brand new scheme – an IP Health Checks pilot scheme to help small enterprises to identify and protect their intellectual property. With the recent changes in the UK making intellectual property lawsuits more accessible to small businesses it is crucial to raise awareness. Below you will find the summary of the recent changes brought into UK IP law and a list of useful tips that can potentially help you identify and protect your IP in a more efficient way. Another useful tool can be found here.

The IP Law Changes

The Government has introduced the Patents County Court (Financial Limit) Order 2011. The Order will make it more affordable and easier for small and medium enterprises to bring lawsuits for intellectual property infringements. The Order implements a new limit of £500,000.00 for damages in the Patents County Court; this means that cases will be likely to be resolved without the need for costly litigation in the High Court. In the past, cases below the £500,000.00 threshold were not automatically allocated to the Patents County Court and exposed businesses to virtually total costs – this put off many small businesses from even considering bringing a claim.

Any IP to protect?

Many small business owners fail to recognise the uniqueness of their products or industrial processes. Intellectual property refers to some different categories of original creations. The protected classes of inventions include both tangible and abstract works and in commercial context mainly include industrial patents, creations and trademarks.

Checklist

How well-developed is your brand? Do your customers recognise your logo or name and buy your products because they clearly know that they come from your company?
Is your company involved in any of the following:
Publishing and printing including books, newspapers, brochures or packaging.
Information technology including software or online solutions.
Music industry including composing or recording music.
Choreography.
Sculpture.
Entertainment including movies and other audiovisual materials.
Architecture.
Industrial innovations and design.
Is any of your goods or services that you manufacture or plan to provide unique to your company?
Have the above been developed by somebody employed or contracted by your business; or have you licensed them from a third-party on either exclusive or non-exclusive basis?
Companies that provide unique and original products or solutions are likely in the possession of the valuable intellectual property. Even if you have not developed the IP in-house, but contracted your work out to somebody else the IP is still likely to belong to you so long as you have paid for it. If you have obtained a licence to use the IP you are entitled to benefit from it and likely to be responsible for co-operating fully with the owner to ensure that nobody infringes the IP.

Have you done your research by conducting trademark/copyright searches with the Intellectual Property Office? – If not you can search the register for free at the UK IPO’s website.
Do you use contractual arrangements to protect your IP from being disclosed? – You should always ensure that not only your employees are under non-disclosure obligations but foremost anybody who is externally contracted to test the IP.
Do your employees keep logs of any inventions made and are they properly trained and instructed on how to identify original creations?
Have you every registered any intellectual property rights with the UK Intellectual Property Office?
Did you know that you can quickly register your trademark in the European Community at the same time as recording your IP with the UK IPO?

Intellectual property enables people to ‘own’ the idea they create, this applies to any creation, whether you are an entrepreneur, an inventor or an artist.

If you have a new idea, the first step is to check whether your creation is already in existence, or whether there is the existing technology that can help with the development of your idea and can be done by using a patents database to check whether this is the case.

The Development Stage

Once you are in the development stage of your creation, you could draw on other people’s expertise that could include using other people’s technology in the development of your idea requiring licensing. The license would grant you the owner’s permission to use the technology, and will also state the conditions upon which you can use this technology. It may be possible to get a license to use works that are protected by copyright, registered trademarks, registered design or inventions that have been protected by patents.

If you discuss your idea/creation with other people, it is advisable to ensure they sign a Non-disclosure agreement before you begin your discussions preventing them from discussing your idea with other.

Pre-Market Entry Stage

One option to protect your technology/creation from the competition is to file for a patent protecting the processes and features of your invention, preventing others from selling or copying your design unless they have permission. A license will also allow you to licence the invention while still retaining the intellectual property rights. If you do not patent your product, anyone else will be able to sell or construct your creation themselves.

If you believe your invention is patentable, then you will need to apply for a patent. It is possible to apply online with the Intellectual Property Office. If you choose to apply by post, a completed application will include an abstract summarising the features of your creation, a completed Form 1 and a description of your invention, which includes any sketches/drawings.

If your production is creative and unique, you may consider design registration. This protection lasts for 25 years, as long as you renew your protection every five years this will give you monopoly protection over your creation, protecting the appearance of the design. It costs £60 to apply for design registration. One advantage of having design registration is that it is relatively easy to enforce, as there is no need to prove your design was copied intentionally.

You should be aware of the fact that artistic and original works are cover by copyright automatically.

Market Entry Stage

If you cannot manufacture your product/creation yourself, and, therefore, need to outsource this, you can protect your creation by ensuring the manufacturers sign a non-disclosure agreement.

Additionally, if you have a patented product, you will be able to licence out this technology to other companies, which could bring technological and financial benefits.

If You Are Starting a Business

It is not enough to register your business’s name with Companies House, as this will not protect it from being used by others. To ensure you have full protection if your idea against the use of your company’s name, it is advisable to register it as a trademark. A brand needs to be renewed every ten years to remain active. Registering for a trademark can be done quickly online.

If your business has a website, it is important to be aware of the fact that if you sub-contract the task of designing your website to someone else, they will keep the copyright of that work. If it is part of your contract with them for them to assign that copyright to you, then they will no longer own the copyright. If you have any original information on your website, it is worth adding the date and owners name along with the copyright symbol (©) at the bottom of the page.

A somewhat stringent set of rules regarding advertising, due to be put in place for the 2012 Olympic Games, are expected to have an affect on not only the athletes Taking part but also on ticket holders and many UK businesses too.

The aim of these rules is to protect the Games’ sponsors who have, essentially, paid for the event, but many are worried that the severity of the restrictions could have a negative impact on London’s economy.

Despite the UK already having a set of legal protections in place for copyright holders and brands the International Olympic Committee (IOC) have demanded their own set of rules which has led to participating governments having to introduce tailor made legislation as an added blanket of legal protection.

Specific legislation in place

The Olympic Games and Paralympic Games Act was passed in 2006 and this Act, alongside the Olympic Symbol Act 1995, gives the Games and sponsors a level of protection which goes above and beyond all the contract and copyright laws already in existence, with any breach of these Acts treated as a criminal offence.

This added legislative protection means that anyone who isn’t a sponsor will not have the right to use images or wording which could lead to the false interpretation that their company is, in some way, linked to the Olympic Games.

This includes the use of any of the two words from the list below used in conjunction with each other:

‘Games’, ‘Twenty-Twelve’, ‘2012’ and ‘Two Thousand and Twelve’.

Even just the use of one of these words in conjunction with words such as ‘Summer’, ‘Gold’, ‘Silver’, ‘Bronze’, ‘London’, ‘Sponsors’ or ‘Medals’ may well be considered a breach of the Acts.

It seems that many non-sponsor businesses will be walking on eggshells this July.

Are things not being taken a little too far? For example – last year the organisers of an event entitled the ‘Great exhibition 2012’ were threatened with legal action by Locog (London Organising Committee of the Olympic and Paralympic Games) because the numbers ‘2012’ were used in the title.

A little petty don’t you think? And perhaps Locog thought so too because they later withdrew their objection but it didn’t stop them from interrupting a recent photo shoot with Sally Gunnell.

The photo shoot was intended to promote easyjet’s new flight routes from London’s Southend Airport. So why was it interrupted I hear you ask, simply because a Union Jack flag was draped over Sally’s shoulders and Locog thought this bore too closer resemblance to a similar pose of Sally’s in 1992 when she won Olympic Gold in Barcelona.

That was 20 years ago, is anyone really going to remember Sally’s exact stance?

Whilst Locog are just trying to protect their sponsors they are putting non-sponsoring businesses in an awful predicament with many of those businesses being forced to seek legal advice to find out how they can stay on the right side of the ‘Olympic Law’.

What should have been an economic boost is now actually causing many small business owners to quake in their boots. These small businesses can’t afford to buy rights to specific advertising or create their own flashy advertising campaigns to promote their businesses and are having to watch their every step in case they inadvertently advertise too close to the mark and end up being prosecuted.

Is this really the way Locog should be behaving?

In a couple of months it will all be over but what’s the betting that, if Locog get their way, it will be many years before some business owners are back on their feet after being sued to the hilt for using a picture of a medal and the date ‘2012’ in their shop window.

Let’s take a look at some of Locog’s stringent regulations.

Rules for athletes participating in the Olympic Games:

Athletes cannot make any comments on social networking sites regarding other participant’s activities
Athletes cannot post any video or audio content on social networking sites or YouTube of either the athletes’ village or the interior of any Olympic venue
Athletes will not be allowed to ‘Tweet’ or blog about what brand of energy bar or breakfast cereal they have been eating unless that brand is an official sponsor of the Games
Rules for non-sponsor businesses

Non-sponsor businesses are not allowed to offer tickets to the Games as part of a company promotion
They cannot use images which could make the public think they are in some way linked or in association with the Olympics
Nor can they use phrases such as “Help us to make it a Gold 2012” or “Supporting our athletes at the Olympic Games 2012”