Cleantech innovation: the legal necessities of joining forces
In the final installment of edie's cleantech innovation feature mini-series, Hamish Corner - partner at law firm Penningtons Manches - outlines the legal necessities that must be established and protected by green entrepreneurs when entering collaborative partnerships with larger corporations.
In the current business climate where new operational models are being introduced and new products sought to hold onto any chances of that crucial 2C global warming pathway, green start-ups and SMEs have the opportunity to drastically shift and disrupt markets, although to get there they may require a bit of help.
Despite issues over trust and ethics remaining prominent in today’s business market, lending yourself to the mercy of established brands may be a necessary need in order to scale-up productions and increase commercial revenues.
But as was discussed in the previous instalment of this series, for all its perks, collaboration can still drastically change the trajectory of a company and innovation.
So, to ensure that SMEs don’t dance with the devil and end up scalded, Pennington’s has drawn up the key necessities that are “pivotal” to a successful, collaborative relationship.
“Securing a deal with a major partner, customer or supplier is often a key milestone in the business plan of early stage businesses,” explains Pennington’s partner Hamish Corner. “Whether due to connections and resource, prestige and market acceptance, or simply increased revenue streams, such a relationship can be pivotal to success.
“However, in securing these deals, SMEs need to protect themselves and their innovations. The terms and shape of any agreement is crucial in agreeing who brings what to the table, who owns what coming out of the project and who is part of what team.”
For Pennington’s - a firm consisting of more than 100 partners and 400 lawyers – SMEs normally encounter four legal elements that need to be addressed to ensure that the business is able to blueprint its future, without being “unduly constrained or impacted” by previous negotiations.
Corner claims that one of the key areas of a business that needs to be explored and protected before entering collaborative negotiations with larger companies is intellectual property (IP). While companies usually spend the appropriate amount of time addressing patents for products, Corner believes that various other forms of IP are commonly overlooked.
“In almost all cases, the most complete protection is obtained through protecting various aspects of the innovation and business using various types of IP,” Corner says. “Care needs to be taken to ensure that all forms of IP are owned by the business, rather than external sources such as consultants.”
He warns that failing to address copyright and database rights could see portfolio costs “balloon” after the first few years, especially when trying to navigate the complex issues of country and region specific patents.
“Hard decisions are often needed as to what aspects of the innovation should be patented, and in which countries patent protection should be obtained. “In addition, early stage businesses often omit to protect their brand identity properly. There is really no excuse for this, bearing in mind the relatively low cost of applying for trade mark registrations, and the strong rights which are conferred on a trade mark owner.”
Another issue that SMEs will have to consider when scaling up a big green idea is the protection of confidential information. According to Corner, the wealth of technical and commercial information established by companies needs to be protected through “robust agreements” and a deliberate management of what information is publically available.
“Businesses need to ensure that robust confidentiality agreements are put in place with any potential partner or customer before any discussions begin,” Corner says. “They shouldn’t shy away from presenting a Non-Disclosure Agreement at the first meeting as a statement of intent and professionalism.
“The best way to prevent your valuable information from being misused or falling into the wrong hands is to simply not disclose it. Also, businesses need to account for exactly who information is being disclosed to. When dealing with a larger organisation, you might be speaking to several group companies as well, so the way you protect your confidential information is commercially significant.”
Corner notes that collaborations often involved external companies, such as consultants, that might be representing the larger corporate. But with no body of law protecting “know-how” aspects of communication, it is worth deciding what to disclose.
With more of the next generation of jobseekers actively looking to enrol with companies with existing sustainable credentials, there is a “growing risk” that pioneering and innovative staff members working for SMEs could be poached by bigger companies with more financial and reputational clout.
In order to avoid this scenario when looking to collaborate with large companies, Corner advises including “non-poaching clauses" into working contracts with other companies.
“Poaching is a real risk, especially where there is considerable know-how held by a few key employees in how to deploy and maximise your technology,” he says. “It is often overlooked but can be dealt with by including restrictive non-poaching clauses in contracts.
“It’s worth noting that these clauses can only last for a limited period of time – if cast too widely they may not be enforceable for public policy reasons.”
The final aspect that SMEs should consider covering before entering contractual negotiations with other companies, is the understanding of contractual rights. Corner warns that SMEs often end up “landlocked” by larger companies that can afford to work at their own pace.
“Large businesses can work at a much slower pace, be more bureaucratic and less agile or entrepreneurial in their approach,” Corner says. “However what often causes more concern amongst businesses we advise is the danger that they end up being “landlocked” by the deal, leaving them unable to use their own tech or approach other potential partners even after the initial agreement ends.”
He warns that, in some cases, the larger company will seek exclusivity of a product for a certain field or application. To mitigate this, Corner urges SMEs to only grant exclusivity for a certain period of time, with removal clauses established if the larger customer fails to utilise the innovation.
“SMEs need to be wary of any partner or collaborator that wants to own the IP resulting from the partnership or collaboration,” Corner concludes. “Might this prevent your own business from exploiting its innovation in the future?”
Read the other parts of this series:
The Innovation Zone at edie Live 2016
Penningtons is a lead partner of the Innovation Zone competition, taking place at the edie Live exhibition later this month.
As a competition specifically designed to promote and support innovation in the sustainability space, the Innovation Zone brings together innovative emerging technologies which are at pre-commercialisation but in the trial stages of development creating a vibrant networking and knowledge transfer hub at edie Live 2016.
The winner of the competition will be announced on the first day of the edie Live exhibition, 17 May.