Intellectual property for start-ups in the Middle East
By Abdullah Mutawi, Partner and Munir Suboh, Partner
Over the past few years, we've seen a growing awareness in both the public and private sectors in the Middle East around the importance of intellectual property (IP) rights and their protection. In the world of early-stage tech companies and the VC investors who fund them, IP is widely recognised as an important set of ‘assets’ to protect.
Certainly, from our vantage point of representing VC investors and companies raising funds from VCs, adequate IP protection is a critical consideration for investors deciding whether to invest in early-stage businesses. The role of, and best practices for, protecting IP assets should therefore be front of mind for start-ups and emerging companies.
It is a truism that, when a company doesn’t yet have significant traction for its product, the main assets of the company are its people and its IP. So, if a management team isn’t seen to pay sufficient attention to IP from the outset, it's usually considered a red flag for sophisticated investors. After all, why would an investor put cash into a company that isn’t protecting its key assets?
Regardless of where a company is in its life cycle, but particularly in the very early stages, founders must have a clear and holistic IP strategy that identifies, catalogues and categorises the company’s IP and also identifies the IP that is going to be created moving forward along the company’s operational and product roadmap.
But what exactly is IP?
Broadly speaking, IP encompasses many rights, such as patents, trademarks, copyrights, domain names, industrial designs, and trade secrets, and emerging areas of interest and uncertainty such as within the hottest sector of the moment, AI.
The method for protecting IP will depend on what category of IP the company or founder wants to protect, where the IP is created and where they want to protect it. From a start-up’s perspective, it might be helpful to distinguish between registrable and non-registrable IP. Another way to think about it is that certain types of IP (such as trade secrets) are assets of the business that already exist in a legal sense as soon as they are created and remain undisclosed to third parties and the public domain. But that doesn’t mean that they are automatically ‘protected’ against infringement or misappropriation. In the case of copyrights, these are registrable, but registration is not technically required to protect them because they are protected at the moment of their creation.
On the other hand, the types of IP that require registration (such as trademarks and patents, but also IT assets like domain names) should be considered assets. Bringing those rights into existence and ensuring their enforceability (in a legal sense) can only be done by registering them - this point cannot be overemphasised.
Non-registrable IP
In the start-up world, the trade secrets of a company are, from the moment of ideation, an already existing set of assets which primarily manifest themselves as the intangible ingredients of a company’s ‘secret sauce’.
The business plan, the pricing model, the go-to-market strategy and an algorithm that analyses data to produce automated and/or actionable decisions to generate revenue are all examples of this type of IP. They will remain so, as long as they're kept undisclosed to third parties and the public domain and held securely and confidentially by the company. Protecting the company from the theft, infringement, misappropriation or unauthorised disclosure of these assets is essential from 'day one'. Failure by a company's management to protect these assets would be an act of gross negligence.
In a typical VC financing, one of the central pillars of legal due diligence is a close look at the company’s IP. Clearly, registrable assets like trademarks, designs, copyrights, patents and domain names are verifiable and documented by third-party registration authorities and by the company itself. Know-how and trade secrets, on the other hand, are all-encompassing terms that cover the less tangible and non-registrable ingredients in the company’s ‘secret sauce’. Investors will want to see a comprehensive approach to protecting all of it.
The critical path to achieving this is the assignment of IP rights by any individual or entity that has potentially created or may, during the course of their relationship with the company, create any form of intellectual property. Such assignments are typically found in employment contracts or in deeds of assignment that can be signed by one or many members of a company’s staff or indeed by external freelancers or contractors.
In the case of freelancers and contractors, there should always ideally be a written agreement, which meets certain authentication formalities, pursuant to which such parties are engaged for their services and an appropriately comprehensive assignment of IP language should be included. But in the absence of a contract with any party who may have or who may in future create IP, assignment of IP can be done after the moment in which that party is engaged by the company through deeds of assignment that can have retroactive effect as well as future effect.
Registrable IP
Having secured the intangible IP of the company in its very early days, the next dimension of focus needs to be on the registrable IP assets.
Copyright
Copyright protects original works of authorship when such original works are fixed in a tangible medium of expression. This includes all forms of original works, such as:
Authorship (digital or physically printed works)
Paintings
Photographs
Illustrations
Musical compositions
Recordings
Software
Copyright protection is almost globally granted based on the Berne Convention and registration of copyrights is not mandatory in most jurisdictions to claim ownership.
For a VC looking at making a significant investment in companies undertaking software development, artificial intelligence (AI) development and the creation of digital assets in the metaverse, they should confirm that the underlying copyright in such assets is properly defined, determined, protected and owned by the intended portfolio company.
Artificial intelligence
At this stage in its emergence, it is still unclear whether copyrights or IP rights in general for works created or produced by AI will be eligible for legal protection. Whether or not an AI engine or its owners can be regarded as having legal personality for the purposes of copyright protection is also a subject that IP lawyers are currently grappling with and, it is safe to say, there has still not been a deep body of jurisprudence around these topics.
However, the authors of many copyrighted works of music and literature are now beginning to come forward with threatened or actual litigation against the ‘large language model’ AI players claiming that AI-created works using their ‘voice’ or authentic form of expression is giving right to copyright infringement. The central argument being that the AI engine learns that authentic voice by mining a corpus of work that belongs to the original artist.
The question is whether IP rights and/or liabilities resulting from such AI can also be claimed or linked to the owning entity. We expect more regulations will be introduced in the future to deal with this issue and add more clarity to interested parties in the AI domain.
Saudi Arabia recently took the initiative to regulate IP rights and proposed some arrangements to determine ownership of IP rights that are potentially created by AI. It included a chapter in a recent published draft law for intellectual property. We are still awaiting the final resolution on this. The EU is taking an active interest in the regulation of AI as well.
Gaming
We have seen increasing evidence that the Middle East has ambitions to become a hub for the gaming and digital entertainment industry. Gaming is a sector where effective protection of IP and copyright is critical from inception. As this technology ‘vertical’ matures in our region, we expect to see some emerging case law and regulations that will add more clarity to the emerging and evolving issues relating to IP rights in gaming.
Trademarks
Trademark protection remains the most recognised form of registrable IP asset protection in the region. A company’s trademark owners using the marks to build houses enormous brand equity, goodwill among customers and helps third parties recognise their products and distinguish them from the products of competitors.
Once a trademark is protected, its owner can restrict third parties from using identical or confusingly similar marks that may cause affiliation, sponsorship, or association between the sources within the territory of protection. Marks build equity in the business and increase the book of business value when exploited, by way of use, license or commercialisation, and are protected properly by their owner.
... if a management team isn’t seen to pay sufficient attention to IP from the outset, it's usually considered a red flag for sophisticated investors. After all, why would an investor put cash into a company that isn’t protecting its key assets?
The steps involved in trademark protection
There are five key steps for trademark owners to follow when investing in their trademark protection: selection, clearance, registration, enforcement and monitoring. These steps apply to all jurisdictions and countries, including the Middle East.
Selection
Trademarks that are inherently distinctive should be selected to obtain the best protection and exclusivity for such marks. Inherently distinctive means marks with terms or elements that are fancy (such as Coca-Cola, Nike or MBC), arbitrary (such as Windows or Apple) or suggestive (such as Burger King or Shahid).
It is important to avoid choosing descriptive or generic terms. Descriptive terms will require tremendous effort and financial investment from owners to show the secondary meaning of such terms in order to obtain protection and establish exclusivity, which entrepreneurs and start-ups don't typically have the time or money for. Generic terms have no protection whatsoever and the investment in generic terms as trademarks make it deficient.
Clearance
'First to file is first to own' is the general principle to decide on trademark registration. Therefore, the selected trademark should be cleared to avoid any conflict with pre-existing rights. This can be completed when checking the existing records by what is known as a ‘knock-out search’, full search and other clearances that include prior use.
Registration
Once the selection is correctly made and the clearance shows the mark is registerable, the registration process should start and be carefully handled. We have seen some SMEs attempt to complete the process directly with relevant trademark offices.
However, the implications of making mistakes in the process can be catastrophic and threaten effective and timely registration and, possibly, by extension, trademark ownership. We always advise clients to work with experienced practitioners who are unlikely to make mistakes, who are intimately familiar with the process and the pitfalls and who are well-known to registration authorities.
Enforcement and monitoring
Once protection is achieved by registration, violation or infringement by any third party should not be tolerated to preserve the integrity of the trademark. Enforcement measures are generally available in the Middle East, accessible to start-ups by different law enforcement agencies and can be pursued when there is an intention to enforce. Monitoring is also essential to keep an eye on the market and spot any attempts by third parties to free ride on the trademark by using some elements of the protected trademark.
