In today’s dynamic and innovation-driven business landscape, startups are the powerhouses of change, propelling groundbreaking ideas into reality. However, amidst the excitement of launching a new venture, entrepreneurs often overlook a critical aspect of their business strategy – intellectual property (IP). IP considerations for startups are not mere legal formalities but cornerstones for safeguarding innovation, fostering growth, and preserving a competitive business edge in the market.
This article explores the IP issues relevant to startups. It will explore the various facets of intellectual property that startups should be acutely aware of, from patents and trademarks to copyrights and trade secrets. By understanding the importance of IP and implementing the right strategies from the outset, startups can navigate the complex IP landscape to unlock the full potential of their innovations while ensuring long-term viability and success.
- STARTUPS AND INTELLECTUAL PROPERTY
A startup as defined under the Nigerian Startup Act 2022 means a company in existence for not more than 10 years, with its objectives being the creation, innovation, production, development or adoption of a unique digital technology, innovative product, service or process.2 To be labeled as a startup, the company must apply on the Startup Support and Engagement Portal (Startup Portal) established by the National Information Technology Development Agency (NITDA)3 with the consent of the National Council for Digital Innovation and Entrepreneurship (the “Council”), and ensure it meets the labeling requirements set out by the Nigeria Startup Act 2022. These requirements include:4
- Registering as a limited liability company under the Companies and Allied Matters Act.
- Existing for no more than 10 years from the date of incorporation.
- Having objectives that revolve around innovation, development, production, improvement, and commercialization of a digital technology product or process.
- Holding or being a repository of a digital technology-related product or process, or being the owner or author of a registered software, and so on.
Receiving the startup label in Nigeria brings numerous benefits, such as tax and fiscal incentives, simplified and expedited registrations with relevant government agencies (MDAs), and discounted registration fees with the National Office for Technology Acquisition and Promotion (NOTAP), among others. Thus, a company that fulfills these requirements will be granted a startup status and enjoy the benefits accorded to startups in Nigeria.5
To thrive in a competitive market, startups encounter challenges posed by both established corporations and other startups. To increase the chances of survival, startups need to strengthen their competitive advantage, attract investors, and develop appealing products that will attract patronage from consumers. One effective strategy to accomplish this is by safeguarding and leveraging its IP. By engaging in registration, exploitation, licensing, and enforcement of these rights, startups can safeguard and leverage their IPs. It is important to point out that a particular product can be protected by a combination of IP rights (IPRs). Thus, a product can be protected by any relevant combination of patent, copyright, industrial design, and trade mark. Let’s explore these IPs and how they can be safeguarded and utilised by startups.
A trademark is essentially a source identifier that distinguishes the origin of goods and services in the stream of commerce. Its primary functions encompass informing consumers that the product or service they are acquiring originates from the trademark owner and assuring them of consistent quality.6 Trademarks include names, words, signatures, symbols, logos, packaging of goods (get-up), shape of goods, combination of colours etc.7
For startups and businesses in general, trademarks play a crucial role in establishing product and service differentiation from competitors. To obtain legal protection, a trademark could qualify for registration, if it meets specific statutory criteria such as falling within permissible categories of registrable trademarks and is distinctive or is capable of distinguishing the proprietor’s goods/services from others. Registration grants a startup exclusive right to utilize the trademark when providing goods and services. It is not uncommon for startups to commence operations without trademark registration, but this can potentially lead to infringement suits if the trademark is identical or confusingly similar to an already registered one. It can also result in actions for “passing-off” if the trademark is identical or confusingly similar to an unregistered trademark that was in use before the startup adopted it. To mitigate these risks, startups should carefully select their trademark and ensure its registration. This typically involves enlisting the services of an IP lawyer to conduct trademark searches, ensuring there is no identical or confusingly similar registered trademark, and handling the registration process. It is also important to note that trademark rights are territorial and are only protected in the territories in which they are registered. Thus, the trademark should be registered in countries in which the startup operates or has immediate plans to operate.9
As a startup grows and builds goodwill, the significance of its trademark intensifies. Ultimately, the trademark becomes closely associated with the startup’s reputation. To prevent competitors from exploiting its reputation and unfairly benefiting from its goodwill by using similar trademarks, a startup should register its trademark.
Another noteworthy aspect of trademark registration is the opportunities it offers startups to expand into foreign markets with reduced costs through licensing, franchising, and other forms of trademark commercialization. However, securing trademark registration alone is not sufficient. Startups must implement measures to safeguard the value of their trademark. These measures may include conducting market surveys, commonly referred to as “IP watches,” to detect unauthorized use of the trademark. In the event of unauthorized use, startups can take legal action to recover lost revenue resulting from such use and deter future occurrences. Equally important is ensuring that the trademark is registered in the name of the startup itself rather than any individual founder, to pre-empt potential issues in case any of the founders depart from the startup.
In summary, trademark registration holds paramount importance for startups, offering legal protection, exclusive rights, and cost-effective expansion opportunities. Selecting and registering a unique trademark, coupled with implementing measures to safeguard its value, constitute crucial steps for a startup’s success and growth.10
Patent is a legal safeguard that confers specific rights upon inventors, granting them exclusive control over the commercial exploitation of their innovative and useful inventions, whether they are products or processes.11 These rights encompass the rights to manufacture, import, use, or sell the invention.12 This also extends to improvement patents, which protect substantially enhanced existing inventions.13 To avail themselves of these rights, inventors must formally register their inventions if the inventions are new, result from inventive activity, and are industrially applicable. Certain inventions do not qualify for patents, such as plant and animal varieties, biological processes for creating plants14 and animals, and inventions that conflict with public order, morality, or scientific principles.15 Patents last for 20 years, after which the invention becomes part of the public domain and can be used by anyone.16 Just like trademarks, patent protection is territorial. However, unlike trademarks, the requirement for use or intent to use before registration is not applicable to patents since there is no obligation on the patentee to work an invention. Thus, a startup can register its patent in any country whether or not it plans to manufacture or sell its patented products in that country.
For startups, which are artificial entities that cannot invent except through their human employees or freelancers, a solid grasp of patent ownership is indispensable from the outset of their operations. According to the law, if an employee or a freelancer develops a patentable product while working for or under a contract with another, the employee or freelance is the true inventor while that other person is the “statutory inventor” and holds the right to file for a patent.17 Thus, it becomes paramount that the employee’s or freelancer’s contract provides that the startup is the employer and not any of the founders of the startup. However, it is essential that the true inventor, namely the employee or freelancer, be acknowledged as such in the patent application submitted to the patent registry.18 This requirement remains non-negotiable and cannot be waived through contractual agreements.19 Furthermore, for an employee, where the terms of employment does not explicitly involve inventive activities but the employee has utilized data or resources provided by their employment to create the invention or if the invention holds exceptional significance, the employee is entitled to additional compensation.20 It should be noted that using/disclosing a novel product before applying for a patent may disqualify it from protection. Many countries require that the patent application be filed before any public disclosure, such as demonstrating the product at a trade show, publishing it, using it, or selling it to third parties.21 While these demonstrations and publications are necessary for attracting investors and customers, startups must ensure their products are properly protected before engaging in such activities.22
Patents are especially crucial when a startup creates a novel product or manufacturing processes.23 Therefore, it is vital for a startup to properly patent its novel products to prevent unauthorized exploitation by competitors and to have legal recourse in case of infringement. Moreover, in the early stages, a startup aims to enhance its competitive edge and attract investors, such as angel investors or venture capitalists. These investors are more inclined to support startups that have taken measures to safeguard their products through patents. In the absence of robust patent protection, investors may be hesitant to invest in a startup whose products could be easily replicated by competitors.
Patents can also serve as a source of capital for startups through outright sales (assignment) or licensing agreements, allowing others to exploit the inventions for a fee. Startups may choose to assign or license only certain rights, such as granting a well-established entity the right to sell the product and excluding the rights to manufacture, import, or use it. This arrangement enables startups to retain their manufacturing know-how, preserving their competitive edge. Moreover, patented products offer protection against reverse engineering, preventing other companies from infringing the patents by attempting to replicate the product through reverse engineering. In any case, the license agreement can explicitly address the issue of reverse engineering. Once the startup becomes an established brand, it can terminate the licensing agreement, subject to the terms of the agreement, and take over the exclusive sale of its product.
It is worth emphasizing that the patent registration system in Nigeria differs significantly from those in other jurisdictions. Unlike those jurisdictions which follow the examination system, Nigeria follows a registration system. In simpler terms, patent applications are not thoroughly examined to determine if a similar patent for the same product has already been granted, or if the patent meets the eligibility criteria. Instead, the registration process primarily focuses on the submission of the legally required documents. Consequently, patents are granted in Nigeria at the risk of the patentee, without any guarantee of their validity. Nevertheless, it is prudent to ensure that a patent fulfills all the statutory requirements to withstand potential challenges to its validity in court.
Copyright is the exclusive right an owner of a creative work has to prohibit or authorize the doing of certain acts concerning his work.24 These acts include reproduction, performance, distribution, adaptation, publication and other forms of use or exploitation of the work. For a work to be eligible for copyright protection, some effort must have been expended to make it original and it must have been expressed in a definite medium of expression. Consequently, an idea, be it so creative and exceptional, does not enjoy copyright protection unless it has been expressed or fixed in a definite medium.25 Thus, work that fulfills the twin requirements of originality and fixation or expression automatically enjoys copyright protection without being subjected to any formality like registration.26
Copyright holds great significance for startups as it grants them safeguards for their creative endeavours. For instance, if a startup develops innovative computer software and programs, copyright ensures that the specific coding, distinct user interface design, and proprietary content in user manuals are all safeguarded. It is important to note that copyrights protect the expression of an idea, rather than the idea itself. Consequently, although the underlying concept or algorithm may not be eligible for protection, the specific manner in which it is translated into code receives protection. This confers a competitive advantage by preventing others from directly copying the unique code or design. Copyright protection also extends to website designs, web content, advertisement audios and videos, and jingles, among numerous other works that may be created by a startup. As long as the work satisfies the requirements for protection, it will be safeguarded.
One distinctive aspect of copyright, in contrast to other forms of IPRs, is its automatic nature. Therefore, registration of the works is not mandatory for them to be protected. Once a work meets the eligibility criteria, it receives protection. However, it is still advisable to register the works not to establish protection, but rather to serve as a public notice and provide certain rights to the copyright owner in case of infringement.27
- INDUSTRIAL DESIGNS
This is the IPR that safeguards the visual aspects or appearance of a product. According to the legally defined criteria, industrial design refers to a combination of lines, colours, or both, as well as three-dimensional shapes, regardless of whether colours are involved.28 It is created to be used as a model or pattern for mass production through industrial processes, without primarily aiming for a technical outcome.29 Therefore, if a product’s design is both aesthetically pleasing and devoid of any functional purpose, it can be protected as an industrial design, provided that the creator intends to reproduce it in large quantities. The creator holds exclusive rights to replicate the design in products, and to import and sell products incorporating the design.30 Registration is a prerequisite for the design to receive protection, and it must meet the requirements of novelty and compliance with public order or morality.31
Industrial designs hold great significance for startups. A startup engaged in the manufacture and sale of physical products can safeguard the visual elements of these products, including their packaging, by registering them as industrial designs. This becomes particularly important when we consider that the design contributes to the product’s appeal and also acts as incentive for consumers to purchase the startup’s product. It is worth noting that, similar to patents, using a product that incorporates the design before applying for registration may render it ineligible for protection. In many countries, industrial design registration must be pursued prior to any public disclosure, such as publishing, showcasing the design or selling products incorporating the design to third parties. While these demonstrations and publications are necessary for attracting investors and customers, startups must ensure that their products are adequately protected before engaging in such activities.
- TRADE SECRETS
This particular type of IP is distinct from others due to its unique form of protection. Unlike other types of intellectual property that are safeguarded by specific laws, trade secrets in Nigeria rely almost exclusively on common law for their protection. Trade secrets are used to safeguard valuable information such as formulas, patterns, compilations, programs, devices, methods, techniques, or processes that provide a competitive advantage. To qualify as a trade secret, the information must be kept confidential, efforts must be made to maintain its secrecy, and it must hold commercial value. Consequently, information that is widely known or lacks commercial value does not qualify as a trade secret. Trade secrets are typically protected through contracts such as non-disclosure agreements and non-compete agreements, and violations can be addressed through legal actions such as breach of contract and misappropriation of trade secrets.
For a startup, it is evident that trade secrets play a vital role in their viability. Valuable information such as customer lists, formulas or processes for product manufacturing, and other critical data that give the startup a commercial advantage can be protected as trade secrets, especially when those processes do not meet the requirements for patent protection. In practical terms, a startup’s protection of its trade secrets will involve identifying the information that qualifies as trade secrets and implementing appropriate protection measures. For instance, limiting access to only those who need to know, securing the information in password-protected storage drives or formats using administrative privileges, and ensuring individuals with access sign non-disclosure and non-compete agreements to prevent disclosure or utilization by competitors after leaving the startup. One advantage of trade secrets, unlike patents or other forms of intellectual property, is their potential for indefinite protection. However, trade secrets are vulnerable to actions like reverse engineering, unlike patents. Consequently, competitors can uncover trade secrets through reverse engineering or independent derivation. Therefore, a startup that chooses to protect information through trade secrets, especially when it could also be protected by patents, must carefully weigh the advantages and disadvantages of this decision.34
In conclusion, IP is pivotal for the success and sustainability of startups in Nigeria’s dynamic business landscape. Safeguarding and leveraging IP assets is essential to secure their innovations, attract investors, and ensure long-term growth and competitiveness. Therefore, IP should be a fundamental aspect of a startup’s strategy from its inception to maximize its potential for success in the Nigerian market and beyond.
For further information on this article and area of law
Please contact Emmanuel Bassey or Kelson Emmanuel at:
P. A. Ajibade & Co., Lagos by
Telephone (+234 1 472 9890), Fax (+234 1 4605092)
Mobile: (+234.703.805.9736, +234.815.088.2839 or +234 810 683 7329)
Email: firstname.lastname@example.org or email@example.com
- Emmanuel Abasiubong Bassey, Senior Associate, Dispute Resolution Department, S.P.A. Ajibade & Co., Lagos, Nigeria & Kelson Emmanuel, Trainee Associate, Dispute Resolution Department, S.P.A. Ajibade & Co., Lagos, Nigeria.
- See section 47 of the Nigeria Startup Act 2022.
- Under the Nigeria Startup Act, NITDA is the secretariat of National Council for Digital Innovation and Entrepreneurship.
- See section 13 of the Nigeria Startup Act.
- For more on startups in Nigeria, see Abiodun Ogunnubi, ‘The Nigeria Startup Act, 2023 – 15 Things to Note’, available at https://spaajibade.com/the-nigeria-startup-act-2022-15-things-to-note/. See also, https://spaajibade.com/the-tech-startup-ecosystem-gets-long-awaited-nigeria-startup-act/.
- Adejoke O. Onyewunmi, Nigerian Law of Intellectual Property, University of Lagos Press, 2015 at p. 231.
- Section 9 of the Trade Marks Act, Cap T.13 LFN 2004. See also, section 69 of the Business Facilitation (Miscellaneous Provisions) Act, 2022.
- See sections 19,10,11,12 & 13 of the Trade Marks Act, LFN 2004.
- Trademarks can be registered on an intent to use basis. However, a trademark can be cancelled for non-use. The period before cancellation of trademarks registered with intent to use is remarkably shorter than that allowed for trademarks that has been used before registration. See section 31(2)(a)&(b) of the Trade Marks Act, Cap T.13 LFN 2004.
- For more on benefits of trademark registration, see Maryam Abdusalam, ‘Registration of Trademarks and its Benefits’, available at https://spaajibade.com/registration-of-trademark-and-its-benefits/.
- See section 1 of the Patents and Designs Act, Cap. P2 LFN, 2004.
- See section 6 of the Patents and Designs Act, Cap. P2 LFN, 2004.
- See section1 of the Patents and Designs Act, Cap. P2 LFN, 2004.
- However, see Plant Variety Protection Act 2021. This Act was enacted in line with article 27(3)(b) of the Agreement on Trade-Related Aspects of Intellectual Property Rights that advocates for protection of plant varieties either by patents, a sui generis system or a combination of both.
- See section 2(4) of the Patents and Designs Act, Cap. P2 LFN, 2004.
- See section 7 of the Patents and Designs Act, Cap. P2 LFN, 2004.
- See section 2(1) of the Patents and Designs Act, Cap. P2 LFN, 2004.
- See section 2(2) of the Patents and Designs Act, Cap. P2 LFN, 2004.
- See section 4(a) of the Patents and Designs Act, Cap. P2 LFN, 2004.
In Nigeria, publications or demonstrations at an official or officially recognized international exhibition within six months before the application for patent will not disqualify the product from patent from protection. See section 1(3) of the Patents and Designs Act, Cap. P2 LFN, 2004.
- For more on protection of IPRs via patents, see Bisola Scott, Recommended Ways to Protecting Business Concepts as Intellectual Property Rights in Nigeria, available at https://spaajibade.com/recommended-ways-to-protecting-business-concepts-as-intellectual-property-rights-in-nigeria-bisola-scott/. Also see Maryam Abdulsalam, ‘Understanding Intellectual Property (IP) and Enforcement of IP Laws in Science’, available at https://spaajibade.com/understanding-intellectual-property-ip-and-enforcement-of-ip-laws-in-science/.
- Through its human employee or freelancer.
- See Kelson K. Emmanuel, ‘Ownership of Copyright Under the New Copyright Act – The Standpoint of An Employee and Independent Contractor’, available at https://spaajibade.com/ownership-of-copyright-under-the-new-copyright-act-the-standpoint-of-an-employee-and-independent-contractor/ accessed on 27th September 2023.
- See section 2(2) of the Copyright Act, 2022.
- See section 4 of the Copyright Act, 2022. Also see Cynthia Njoku & Maryam Abdulsalam, ‘Is Registration of Copyright a Requirement for Proving Infringement? A Critical Analysis of the Ruling of the Federal High Court in the Case of Paul Allen Oche v. Nigerian Breweries Plc. & 3 Ors’., available at https://spaajibade.com/is-registration-of-copyright-a-requirement-for-proving-infringement-a-critical-analysis-of-the-ruling-of-the-federal-high-court-in-the-case-of-paul-allen-oche-v-nigerian-breweries-plc-3-ors/.
- Ibid. Also see sections 43 and 87(4) of the Copyright Act, 2022.
- See section 12 of the Patents and Designs Act, Cap. P2 LFN, 2004.
- See section 19 of the Patents and Designs Act, Cap. P2 LFN, 2004.
- See section 13 of the Patents and Designs Act, Cap. P2 LFN, 2004.
- In Nigeria, publications or demonstrations at an official or officially recognized international exhibition within six months before the application for registration will not disqualify the design from registration. See section 13(4) of the Patents and Designs Act, Cap. P2 LFN, 2004.
- For example, the recipe for the production of Coca-Cola beverages is strongly protected, and as the story goes, only 2 persons know this recipe.
- For more on protection of IPRs by trade secrets, see https://spaajibade.com/an-appraisal-of-trade-secrets-as-an-intellectual-property-right/, Bisola Scott, Intellectual Property Protection for Software in Nigeria, available at https://spaajibade.com/intellectual-property-protection-for-software-rights-in-nigeria/. See also, https://spaajibade.com/an-appraisal-of-trade-secrets-as-an-intellectual-property-right/.