Investors prefer to invest in businesses that are based on proprietary technology or processes, particularly when those processes or technology are protected by intellectual property law. Their thinking is that such protection deters others from copying the IP and provides the business with a competitive advantage. Additionally, having protectable IP gives the business the option of licensing it to others, thereby generating a revenue stream.
Intellectual property falls into four primary categories, patents, trademarks, copyright and trade secrets, and the requirements and protection provided by each differs significantly. Often there may be an overlap in protection and a particular work product may qualify for more than one form of protection. In a business setting, it is important to establish who owns the rights to any work produced. Generally, any work produced by employees is owned by the business and therefore any intellectual property rights acquired by that work belongs to the business. If, however, the business retained an independent contractor to produce the work, the independent contractor may own the work, and its intellectual property rights, unless there is a clear assignment of ownership. For example, in the case of work product that qualifies for copyright protection, it is customary to designate the assignment as a “work for hire” so that the copyright ownership is retained by the business.
If the business is either based on proprietary technology or expects to generate IP, it should consult with an IP attorney early on to determine appropriate strategies for protecting that IP. There are sometimes tradeoffs to be made when deciding to acquire IP protection. In some cases it might not be advantageous for the business to invest the resources to obtain IP rights, particularly for patents.