Restrictive Covenants and Intellectual Property
Perhaps one of the least expected outcomes of the recent pandemic has been a surge in new business formations. Some of this has been forced through redundancy, others have acted quickly to fill a new market need, whilst others have restructured their business.
Given a more fluid fast-moving marketplace we have seen a trend, especially within professional services, where key personnel or a small team decide, for whatever reason, to break away and start up on their own. In the service sector there are less barriers to starting-up than say, manufacturing where plant and facilities need to be secured.
This can be problematic for both the business they leave and for the new business they establish. Accidently or deliberately the new business may take the intellectual property associated with the former business. In some instances this can expose them to litigation.
Intellectual property is a largely intangible thing and may cover ideas, concepts and perhaps data and contacts. Critically, as the useful gov.uk website points out:
“You usually will not own the intellectual property for something you created as part of your work while you were employed by someone else.”
As such the potential for litigation following a breakaway is considerable as the original business attempts to protect its business position. Given the intangible nature of intellectual property guidance is needed by both the original business, to determine if they have a case, and for any breakaway or new business startup.
There is also an employment contract issue to consider when looking to protect a business or when considering forming a new business. There is a great deal of misinformation surrounding restrictive covenants. There are different types of restrictive covenants and a business owner should ensure that the content of these is adequate when they are being drafted, if they are not well drafted the business could be vulnerable. As the Federation of Small Business points out on its website:
“Restrictions are supposed to be individually tailored and specific. They should provide an employer with no more than adequate protection to be capable of being enforced.”
Business structure also plays a central role when considering intellectual property and employment contracts with partnerships posing rather unique challenges.
The issue of intellectual property and restrictive covenants often go hand in hand when people leave to set up their own businesses. Business owners need to protect their rights, whilst new business owners should carefully consider the potential for costly litigation.
If you require help with litigation or employment matters please contact our specialist team on: