Startups, as companies running a business in high value-added sectors, with their high potential for rapid growth but without a sustainable business model, are forced to look for investors in one form or another. Most of the times, only after finding one or more investors, startups can start realizing their business ideas. Standard possibilities for investments are debt or equity financing. Debt is defined as something, usually money, owed by one party (the borrower or debtor) to a second party, while equity financing is the method of raising capital through the transaction of shares and is a more suitable alternative for starting startups with little to no resources. Any other form of financing is a subsystem or a combination of either of these two.

 Unique ideas are the main driving force behind most of the startups, and for this reason, it is also the most valuable assets. This makes both equity and debt investors very concerned about the security of their investments by obtaining a protection interest in the intellectual property (IP) assets but in different kind of ways. By granting debt, investor most likely is going to use security measures where startups pledge their intellectual property. In comparison, equity financing investor is more concerned about proper security and quality of IP assets since he/she becomes a partial owner of it.

 It is expected that a startup will have full possession of all IP that is critical to the development and progress of the business. Even if an enterprise is not registered yet, all IP must be held by an entrepreneur. An investor will make sure that the business he plans to invest in owns the IP for its technology or business idea. In addition to this, not all IP assets are equal, and the value of IP assets depends on a combination of legal, economic, and technical factors. For this reason, it is also advantageous to obtain an unbiased assessment of these assets from a professional who understands the nature of IP assets.

 Collaborative activities that bring together the interests of investors, specialists of all kinds, young entrepreneurs, and other parties can often raise questions about who eventually ends up owning the intellectual property rights. Besides, there may also be experts who help startups with design, websites, programming, research, marketing materials or something else. Unless these people work under proper agreement, the startup company itself may not own the rights to the work of these people. Therefore, the first and foremost goal of a startup or entrepreneur is to determine on what intellectual property their business model is based on and identify who owns it.

 Our recommendation is to avoid co-ownership where two or more parties have shared ownership and control of the same intellectual property rights, especially with patents or trademark registry. Co-ownership very seldom delivers the desired purpose and only increase the odds of potential conflicts. Additionally, each co-owner decision is required for practically any or all disposal of the intellectual property rights, and this complicates possibility to use IP and to defend it as well. Alternative options, where all intellectual property is registered in the name of a startup or shared between founders or investors, most of the time, are better options at protecting even the collective interest. By ensuring ownership and protection of IP assets, collaborative projects have higher chances to be more efficiently implemented, and litigation between partners avoided. 

The ideal solution would be if a startup could understand and even register rights for its IP assets even before finding investments, so it would be more likely taken seriously by possible investors. The distribution of intellectual property at the starting point allows for proper IP assets allocation not only by finding investors but even upon the termination of the business relationship with them.

In summary, the goal of every startup is to protect and maintain its intellectual property base, which would allow it to continue operations. This achieved by registration of IP assets, entering into IP distributing arrangements and by well-designed confidentiality and non-disclosure arrangements. These tools will help to control IP privacy and protect the startup interest not only in theory but also in practice against any possible or actual investors, employees and/or partners. 

The article is written by Paulius Milkevičius, Lawyer at METIDA Law Firm Zaboliene and Partners. 

The definition of an invention

"Eureka" shouted Archimedes, after he had stepped into a bath and noticed that the water level rose, at which point he suddenly understood that the volume of water displaced must be equal to the size of the part of his body he had submerged. "Eureka", in Greek, means "I found (it)." And till today, discoveries and inventions are significant factors for the development and progress of modern society.

The technical invention is a kind of scientific solution that solves an existing problem. A simple example of an everyday problem would be the difficulty of lifting a cup with a hot beverage. And a simple invented solution for this problem is a cup handle.

The present invention is, of course, very ancient and primitive. Nowadays, the inventions are much more complicated and subtle. The technical solution is considered an invention only if it advances the previously known scientific art. The invention may be described as an object, process or method, or as a new use of a known object. Novelty is one of the main features of the invention. Unless a particular solution is new, it is not considered an invention.

When evaluating inventions through the prism of patent law, a patent is the only legal tool that can protect a new invention and confirm the invention's authorship. However, in order to be granted for patent protection, the invention must confirm the requirements of the patent law.

What inventions can be patented?

The criteria for patentable inventions are defined in different legal instruments, but the main requirements are the same in the majority of countries. These criteria are foreseen, for example, in the European Patent Convention, the United States patent law, and most other national countries' patent rules.

The first requirement is novelty. An invention is considered to be new if it does not form part of state of the art. State of the art is held to comprise everything made available to the public using a written or oral description, by use, or in any other way, before the date of filing of the patent application. State of the art, or in other words, the prior art, is all the information that existed before the filing date of the patent application. It can be a technical document, that describes the working method of the invention, video file, that shows how the invention works, or any other form of disclosure that clearly shows the effect and functions of the invention.

It is important to note that the novelty of the invention must be historical and global. That means that if someone invented the same invention in one country at any point in time, nobody else would be granted a patent in a different country for the same invention.

It is also relevant to highlight, that the inventor himself may lose novelty if he publicly discloses his idea before filing a patent application. Even if a single sample of the invention was sold, the requirement for novelty could already be void. It is always safest not to disclose the invention to anyone until a patent application is filed.

The second condition for the patentable invention is an inventive step

An invention shall be considered as involving an inventive step if, having regard to state of the art, it is not obvious to a person skilled in the art. In terms of the inventive step, the European Patent Organization has developed a "problem-solving approach". It first identifies the closest analogue, then determines the problem solved by the invention and, in a third step, determines whether the solution of the problem to the person skilled in the art is not obvious. The example of the lack of inventive step would be using the interchangeable materials, such as glass instead of plastic.

The third condition required for obtaining a patent is the industrial application of the invention. An invention is considered as susceptible of industrial application if it can be made or used in any kind of industry, including agriculture. Therefore, for example, computer codes are not patent protected as the code itself is not directly used in the industry and does not perform any technical processes.

Only when all three conditions of the patent law are fulfilled, the inventor is granted patent protection. Once granted, the patent protection lasts for 20 years from the day the application was filled.

Protection of patents

Another important aspect of patent law is that patent protection is territorial, and there is no worldwide patent. It is necessary to understand that the country grants patent protection under its rules. Because each state has its patent laws and regulations, a patent issued by the authorities of a particular country will be valid only in that country. For example, a patent issued in the United States will not be valid in European countries. Making or selling an analog of such patented invention in Europe would not infringe on the rights of the US patentee. Therefore, it is crucial to anticipate the markets (territories) where patent protection is needed. After a statutory term, that is typically 12 months (so-called priority period), filing a patent application for the same invention in a different country may no longer be possible, and the applicant will lose the right to defend the invention abroad.

As mentioned earlier, it is not possible to obtain patent protection for an invention in all countries of the world with a single patent application. Patent applicants must submit the patent application in each state individually.

There exists, however, the International patent application (not to confuse an application with a patent). The international patent application procedures are administered by the World Intellectual Property Organization (WIPO) and governed by the international Patent Cooperation Treaty. The Patent Cooperation Treaty provides opportunities for filing a patent application in most countries around the world more efficiently by reducing the administrative burden and extending the filing deadlines. However, even in this case, the applicant must apply in each country separately, translate the patent application text into the national language, pay the governmental fees, and, in most cases, use the assistance of the local patent attorney. Different patent laws and practices in different countries also affect the fact that the same invention may have a patent granted in one country but refused protection in another. For example, in the United States, it is easier to obtain patent protection for computer technologies than in Europe. The threshold of industrial applicability of the computer-implemented inventions is lower in the US than in Europe, resulting in significantly more patents issued in the US.

Value of patents

Patents have value for its owner and also for the society as such.

For the patent owner, patents provide incentives to and protection by offering him/her recognition for the creativity and the possibility of material reward for the inventions. Patent protection provides the right to prevent unauthorized use of the protected technology, to defend the rights in court, and to initiate legal proceedings against any persons fraudulently using the patented invention. However, the primary responsibility for monitoring, identifying, and taking action against infringers of a patent lies with the patent owner.

A patent owner has the right to decide who may – or may not – use the patented invention. Patent protection means that the invention cannot be commercially made, used, distributed, imported, or sold by others without the patent owner's consent.

On the other hand, patents are invaluable tool for the inventors and scientific community to build further knowledge and invent better technologies. The obligatory publication of patents and patent applications facilitates the beneficial spread of new knowledge and accelerates innovation activities by, for example, avoiding the necessity to "re-invent the wheel". Once knowledge is publicly available, by its nature, it can be used simultaneously by an unlimited number of persons. The dissemination of knowledge about new inventions encourage further innovation, which assures that the quality of human life and the well-being of society is continuously enhanced.

The article is written by patent attorney Jūratė Breimelytė.

It's really important for young entrepreneurs to plan a long-term business development strategy for their start-up business. One of the core elements to include in this strategy should be the strategy for the implementation of the protection of intellectual property.

1. To make sure that the intellectual property rights of other persons are not breached. When using and, as will be seen below, registering a trademark, a design, a patent or a name of a company, it is important to check in advance whether the rights of other persons will not be breached. Every start-up business needs to asses the risks related to the possible court disputes regarding the breach of exclusive intellectual property rights of other persons. For example, after coming up with a trademark, one needs to check the databases of the countries, where this trademark is intended to be protected, in order to make sure that such a trademark or a similar one or the name of the company is not yet registered. A detailed search could significantly minimize the risk of future disputes.
2. To take care of the registration formalities related to the acquisition of the protection of intellectual property. Intellectual property includes not only trademarks but also designs, patents, names of legal persons, commercial secrets, know-how, the author works such as computer programmes, databases and other objects. In other words, intellectual property is everything that is created by a human being. Different from the protection of author works, which originates from the moment a piece of work is created, some objects of intellectual property, e.g. trademarks, patents, design etc. become legally protected only from the moment when an application for their registration is being submitted to the competent authorities. Only after the registration of such intellectual property objects would it be possible to safely dispose of the exclusive (owned exclusively by the owner) rights and to protect them against third persons in certain territories, i.e. this may be a registration of a trademark in Lithuania, in the whole territory of the European Union, USA or China.
3. Transfer of intellectual property rights to the start-up. For the start-up business to be able to use and dispose of the exclusive property rights vested in the intellectual property objects, it is necessary to agree that all intellectual property objects, created by founders of the start-up or other persons, who have contributed to the business development or the creative process of the start-up, also all property rights vested in them, would be transferred to the start-up. In addition to that, the employment contracts of a start-up should include a clause indicating that all property rights, arising from the results of intellectual activity (e.g. author works, patent, trademarks etc.), which were created during the performance of working functions or professional duties of employees, belong to the employer, i.e. the start-up.
4. Protection of intellectual property objects in dealings with third parties. Legal protection granted to the intellectual property objects provides, among other things, a basis for receiving financial benefit from them. The owners of exclusive intellectual property rights to, e.g. trademarks, patents, design, author works, have the right to enter into license agreements with other persons and allow these persons to use the ownership for a certain payment. This way a start-up may not only get the additional financial benefit but also increase the visibility and value of its activities as well as its intellectual property objects.
5. Protection of commercial secrets and other valuable information of a start-up. Every company has and uses information which is specific and particularly important for the activities of that company. Different commercial secrets, know-how or other confidential information is essentially important to start-ups, the basis of whose activities is mostly new, not yet known, innovative ideas and various processes for the implementation of these ideas. Therefore, it is essential to ensure legal protection of such information also by informing the persons, participating in the activities of the start-up, e.g. employees, on the obligation to protect such information even after the end of the employment relationship. Every company should draw up a list of commercial secrets, listing valuable and secret information, and familiarize the employees with the obligation to protect it. The protection of such information should also be taken care of in the relations with the partners by including confidentiality clauses in agreements.

The article is written by TRINITI.

Often, when consulting companies and startups, the question that arises is: how to find and choose the right lawyers for business relations and business development abroad, and what are the main aspects that should be taken into account? What are the most common mistakes when choosing legal partners to expand your business in a foreign market?

The first thought that often comes to mind is for a company to approach a large international law firm with offices around the world. Such organizations often have an excellent reputation and uncompetitive popularity, but there are a few aspects to consider before choosing to work with a large law firm:

1. The biggest disadvantage of such firms is the financial resources: you will often have to pay an additional fee for a well-known name – the same as paying for a well-known brand - but this does not mean that the quality of legal services will be higher than in a small or medium-sized firm. Rapid price growth in the so-called “BigLaw” area has been observed for a long time, and in 2019 invoices issued increased by as much as 4.5%.
2. Time costs: large companies often take longer to perform even the smallest tasks. This situation arises because larger organizations integrate more processes, and the busyness of such companies is often quite high, which leads to a longer project implementation time.
3. Personal relationship: all individuals who have ever encountered legal system subtleties know that the humanness of lawyers is critical to the business relationship between a client and lawyers, especially in the face of business problems and other difficulties. When developing a business in a new market, we want to have 100% confidence in our lawyers, which is easiest to do when both clients and lawyers can take the time to establish a personal connection.
4. In many cases, large firms do not have sufficient specialized experience to develop their business in a specific area, such as the financial technology market.

So how do you look for lawyers who can meet all of your basic needs in a foreign jurisdiction?

First of all, you should define exactly what legal services you are looking for: do you just want help setting up a business? Does your activity require licenses? Do you want to buy real estate? Are you planning to employ residents or post people from the company's headquarters?

With all of these aspects in mind, it is suggested to choose an accurate, specialized law firm. Currently, "boutique" law firms are extremely popular and have some advantages over large international law firms. First, a smaller law firm is always more specialized. By choosing exactly which specialists you are looking for, you can find partners who will specialize in the right field for you. Also, it is important to note that even specialized lawyers are highly qualified professionals in the entire field of law, and despite their niche specialization, they will always be able to assist with general legal issues. When you come to a "boutique" office, you will receive much closer and more personal attention, and it is also more likely that a smaller office will be able to devote resources to faster, more efficient work.

What is important to pay attention to?

Of course, it is also important to mention a few aspects that are worth considering when choosing any law firm - large or small. One important aspect, as in any profession, is experience. Just don’t confuse this experience with the timing of setting up a firm: a new firm can also be set up by most experienced lawyers. Also, always ask if the firm you are going to work with has already worked on projects of a similar nature, if the lawyers are already engaged in similar activities, then all the processes will be much faster and more efficient.      

By understanding the differences between a larger law firm and a "boutique" firm, you, as a startup, can decide more clearly what kind of partners you are looking for, however, what should you do if you do not have the time to surf the Internet and chat with everyone via e-mail and "Zoom" when looking for a suitable company? One way is to rely on recommendations and personal experience and to contact law firms you have worked with before. Of course, personal recommendations are extremely valuable, but ordinary personal experience is limited and does not provide an effective opportunity to choose the best legal partner from several suitable candidates.

Not everyone has experience working with one or another law firm; in view of this and the significant growing desire of customers to expand their business in foreign markets and by constantly helping customers to find partners in other countries, we concluded that it is worthwhile to create a product that meets all the above customer expectations: we have created a Lawcalizer platform - with the help of which you will be able to find yourself pre-tested, reliable, specialized legal partners in almost all jurisdictions of the world.

Thanks to the Co-founder of Lawcalizer, Paulius Astromskis, PhD., for sharing this with the startups’ community!