Is your IP safe? Eight real-life tips to avoid costly mistakes

Issues with IP rights often come to light in connection with business transactions – such as M&A deals or financing rounds – when lawyers conduct due diligence reviews. At that point, the milk is often already spilled. At worst, these issues can derail an acquisition or block financing.

Problems that emerge during DD are naturally hardest on company owners and management, but they can be frustrating for the lawyers conducting the review as well. After all, many of these issues are entirely preventable with proper handling from the start.

In this article, we will share eight practical tips to help your company take better care of its IP rights. They are based on issues we regularly encounter during DD reviews.

Could today be the day to make sure that a future transaction or financing round doesn’t fall through due to insufficiently managed IP rights?

1. Find out what IP rights your company has

To protect your company’s intangible assets, you first need to know what you actually own. Companies are generally well aware of their registered IP rights – after all, they have registration certificates and pay fees for them.

There are, however, two common problem areas. First, companies don’t always realise they have other intangible assets that could be registered but aren’t, leading to missing trademarks or unprotected inventions and designs. Second, companies often have an incomplete picture of their unregistered IP rights, i.e. copyrights, related rights and trade secrets. It’s difficult to protect something you don’t know you have.

2. Agree on the transfer of IP rights

Every time someone develops something for your company, make sure you have it in writing that the related IP rights transfer to the company. This applies to everyone – employees, owners and founders, managers and board members, consultants and freelancers, subcontractors and partners, as well as interns and students. Without a clear contract, the developer may retain the rights, which can make it difficult or impossible to commercialise what’s been created.

3. Don’t forget alteration and onward transfer rights

When agreeing on the transfer of IP rights to the company, it’s important to make sure that the transfer is sufficiently comprehensive in terms of time, geography and content. A small but crucial detail is that when transferring copyright, you must separately agree that the company as the transferee also has the right to alter the work and transfer the copyright to others. Without this express provision, the company isn’t permitted to do either.

4. Use open source wisely

If your company uses open source in its products, find out exactly what licensing terms apply to the components you’re using. Without clarifying the licence requirements upfront, you may inadvertently end up using so-called copyleft licences in your software products. In the worst case, careless use of copyleft licences can lead to an obligation to disclose the source code of the company’s proprietary products containing copyleft-licensed components to anyone who requests it.

5. Make sure compensation matters are in order

When agreeing on compensation for the transfer of IP rights, ensure the agreement is sufficiently comprehensive. It’s generally advisable to agree that the developer’s compensation includes payment for the IP rights transfer as well. Don’t forget about mandatory legal requirements, though. For example, the Act on the Right in Employee Inventions requires employers to pay reasonable compensation to employees – and in some cases, members of management – for their inventions, and this obligation cannot be waived by agreement.

6. Register your trademarks

Some people mistakenly believe that exclusive rights to a trademark can be obtained simply through establishing the trademark. However, this is only possible in Finland and requires substantial evidence, which is why, in practice, trademarks should always be registered. When registering trademarks, make sure to register all the trademarks your company uses and ensure that the registrations cover the relevant territories and categories of goods and services.

7. Protect your trade secrets

Make sure that your company has identified its trade secrets and established documented practices to protect them. It’s essential to protect trade secrets both contractually, for example through non-disclosure, employment and consultancy agreements, and operationally, through adequate data security, access control and other protective measures. Failing to properly identify or protect trade secrets can expose your company to disputes and, in the worst case, result in the complete loss of legal protection for some trade secrets.

8. Ask an expert when needed

The issues outlined above can seriously hinder your company’s operations or even bring them to a standstill. The simplest way to avoid problems is to review the necessary safeguards with an expert well in advance of any transaction, dispute or other important juncture in your company’s operations. Our goal is to have your company pass a potential DD review with flying colours.