UK: The Role Of IP And JVS In E-Business

Last Updated: 5 September 2002

Article by James Thorby and Georgia Shriane

The importance of intellectual property (IP) in the e-business and technology based businesses of the Thames Valley cannot be overstated. This article, written by members of Clarks Corporate & Technology group, considers the roles of IP assets and the joint venture vehicle in enabling businesses to trade electronically more effectively.

Before you can exploit IP (electronically or otherwise) you must first make it secure. This can be achieved by both legal and non-legal strategies. These are summarised below. This also addresses the relevance of particular IP rights to an e-business.

By registering trademarks (as well as patents and designs, where appropriate) and properly monitoring use of copyright, database, know-how and confidential information it is possible to effectively control the use of your technology, including software, its source code, databases and product development. This can provide either a sustainable competitive advantage, an income stream or the basis for development of new products, particularly relevant to e-business and its novel business models.

In relation to e-business, it may well be appropriate to work with trading partners, with each bringing the business venture their unique skills e.g. website design, marketing, data management and other software applications. Such co-operation may well take place through the medium of a joint venture. Common reasons for establishing a joint venture are summarised below.

The term "joint venture" is widely used commercially to cover a range of situations where two or more parties agree to establish a common enterprise or business in which they will jointly participate.

Joint ventures are typically based on a contractual, partnership or corporate structure. A joint venture based on a contract to undertake a joint project is the simplest form often involving the sharing of costs, resources and income and the contract can deal with the ownership and use of any IP or technology. Care must be taken to ensure that a partnership is not created unintentionally. A contractual joint venture is particularly suitable for one-off projects.

Corporate joint ventures are the most popular form where there is to be a continuing business, for example, in setting up and operating an e-commerce site. The business partners become shareholders in the joint venture company ("JVC") that will hold the assets of and operate the new e- business. IP can then be licensed to the JVC enabling it to be used in a controlled way with, if appropriate provision for royalties or other payments to be made.

In the lead up period before the JVC is formed, protection for technology and IP assets in negotiations and discussions should be obtained through an appropriate confidentiality agreement.

At the outset of a joint venture the parties need to consider how profits and losses are to be shared, how a new or replacement member may be introduced and how the assets of the joint venture are divided up at the end of the venture.

Summary

A key issue for an e-business, like any other, is planning and anticipating what problems may arise later. If you do not secure the necessary IP rights (for example in the website design, the content or the software which operates the website), it will be like building a wall without foundations – you will not last very long! Similarly, as regards your business vehicle. Whether this is the form of a joint venture or some other form, you need to address the basic issues of what goes in, who operates it and what comes out. Again, if you fail to deal with these issues, your e-business is at serious risk of failure.

Types of IP and relevance to e-business:

Trade Marks - Any sign capable of distinguishing goods or services of one business from those of another can be protected by trade mark. The symbol ® should be incorporated in the trade mark to denote that it is registered. Unregistered trade marks are denoted by the TM symbol. Potentially indefinite duration. Trade marks will be particularly important in branding the e-business.

Copyright - Arises automatically on creation of original works including software, websites, literary and artistic works, databases or other recorded works. Copyright lasts for the author’s life plus 70 years. Its particular relevance to e-business will be in relation to ownership of the website design, content and any bespoke software which gives the e-business a competitive edge

Database Right - protects the systematic arrangement of data or other materials (in electronic or manual form) for 15 years from the end of the calendar year in which the database was completed, or first made available to the public. Subject to data protection requirements, the collection and collation of data will be important to an e-business and therefore so will be database rights.

Patents - protect inventions provided the proper statutory procedure is followed. An invention is only patentable if it is new, involves an innovative step and is industrially applicable. A patent can last for up to 20 years. Business model patents, which may be relevant to e- business are currently easier to obtain in the USA than the EU.

Reasons for a joint venture:

Cost Savings - achieved by rationalisation, synergies shared R&D costs etc.

Risk Sharing - financial risks and rewards can be shared making them more palatable.

Access To Technology - access to other parties’ technology and skills can accelerate entry into a market. "Going-it-alone", may take too long and be too expensive.

Expansion of Customer Base - one party may take advantage of the other’s knowledge of another market.

Pressures of Competition - a joint venture may enable you to match the size and abilities of competitors.

Leveraged Joint Venture - a joint venture can effectively finance an acquisition.

Cultural Reasons – to gain exposure to new ideas and technology in key product areas without devoting resources to organic development.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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