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How businesses can protect intellectual property when going into administration

With the recent news that Deloitte warned staff at UK mobile commerce company Powa Technologies to not give intellectual property to former management, it raises the question: how can firms protect the business when going into administration?
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Powa Technologies’ administration in February apparently caused administrators to set about frantically trying to collect the company’s property from former staff members. And alongside the collection of tangible property such as laptops and mobile phones, administrators warned staff that they should not pass on intellectual property such as computer code to the company’s ex-management. 

The administrator’s actions act as a reminder to businesses of the need to protect intellectual property given its intrinsic value in attracting buyers in insolvency situations. That value is often higher than the value of a company’s tangible assets such as fixtures, fittings and stock, but can be much harder to protect, collect and exploit.

What measures, then, can companies take to ensure, insofar as possible, that intellectual property is protected and therefore attractive to potential buyers?

The obvious starting point is registrations. If the intellectual property is registrable – as a patent, trade mark or design – a business should effect registration and ensure that the registration is current and in the correct name. The ability to see tangible evidence of intellectual property such as a formal registration of the relevant right makes it much more attractive to potential buyers.

Consideration should also be given to the terms of a business’ contracts with its employees and any contractors. Where a contractor produces intellectual property for a business, in the absence of a contract providing for an assignment to the business, the contractor may retain the intellectual property and it will therefore not form part of the business’ assets. Whilst the general rule with regards to employees is that any intellectual property developed by them during the course of their employment is owned by the employer, it is prudent to include a term to that effect in the contract of employment to put the matter beyond doubt. 

Read more about protecting your intellectual property:

Furthermore, businesses should give consideration to the inclusion of terms dealing with the return of confidential information on the termination of the employee’s relationship with the business. Such terms may impose on the employee obligations such as the return and/or deletion of all confidential information held on devices such as laptops, mobile phones and other storage media. These terms may also operate as restrictive covenants preventing the employee from using any confidential information for a period of time and in connection with certain business ventures. 

Such provisions are notoriously difficult to police and enforce with the only option often being costly litigation. They will, at the very least however, focus an employee’s mind and give a right to any potential purchaser to enforce the rights acquired from the insolvency practitioner.

With the meteoric rise in social media, more businesses are tapping into the benefits it can offer such as increased brand visibility, enhanced profile and access to a potentially limitless client base. As a result, employees are often tasked with “fronting” social media campaigns and encouraged to “link” with existing and new clients via Linkedin, to enhance and generate relationships. Careful consideration needs to be given to what happens when the employee’s relationship with the business ends since social media followers and contacts are an extremely valuable part of a business. 

The issue was highlighted in the UK when Laura Kuenssberg, the BBC’s chief political correspondent left to join ITV, taking her 60,000 Twitter followers with her. The issue should be dealt with in contracts of employment in order to avoid uncertainty when the relationship ends. Employers may seek to categorise the followers/contacts generated through and held on employee’s social media sites as “confidential” and akin to that traditionally held on laptops and mobile phones, in an attempt to secure its return post-employment. 

To conclude, in order to protect its intellectual property insofar as possible, it is vital that a business gives careful consideration to the terms upon which it deals with its employees and contractors. In the absence of clear commercial terms governing those relationships, an insolvency practitioner or purchaser of a business’ assets often has the unenviable task of seeking to retain intangible rights by relying on existing statute or common law intellectual property rights, most of which were not intended to deal with such situations. As a result, the exercise becomes protracted, costly and far from clear cut.

Most businesses know that intellectual property is important but many, especially SMEs are not really sure how to make the most of it. We talked to several experts to find out why SMEs should be making it a priority.

Philip Herbert is a partner and Hayley Devlin is an associate at Hamlins.

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