Technology and insolvency—how can startups protect their IP?

Technology and insolvency—how can startups protect their IP?
What are the insolvency implications that relate to technology startups? Frances Coulson, senior partner and head of insolvency litigation at Moon Beever, and Indradeep Bhattacharya, intellectual property associate, and Jonathan Little, partner at Jones Day, consider the issues.
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The early stages of a tech startup can be a whirlwind. Amid the essential startup activity, intellectual property sometimes takes a back seat. What do tech startups need to understand about the different types of IP and how to protect them?

Indradeep Bhattacharya and Jonathan Little (IB & JL): For a tech startup, IP can be one of the most valuable (if not the most valuable) asset for the company. It may provide the foundation of the business, differentiate its offering from its competitors, and can often be used as leverage to secure funding to take the business to the next step.

Tech startups therefore need to have a clear understanding about the nature and scope of the IP assets the company owns and put in place robust systems to protect and commercialise the IP. The following points are key:

  1. It is important to formulate an IP protection strategy—early. If the company does not acquire appropriate and adequate rights to the IP right at the outset, the service or product offering can be compromised from the start. Fixing things later on can be tricky and very expensive.
  2. Companies should use appropriate ‘clean room’ procedures for handling third party IP. Some of the most common disputes in this arise in relation to competing claims for ownership of IP.
  3. The company should ensure that it has appropriate licences for the use of third party IP and that these allow the use of the IP by the company, and also apply to any end customer products.
  4. Watch the use of open source software as this will often have disclosure obligations and the licensing restrictions for derivative software.
  5. Put in place escrow protection from the outset.
  6. It is also essential the company not only puts in place the right procedures but also documents these appropriately. When the

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