What do you need for a successful business: business skills, a good product, strong IP, investment?

As an investor in new businesses, what are your criteria for accepting investment proposals?  Do you need to see a skilled management team, a product that people are starting to buy, and good IP protection?  Ideally, should the IP protection include patents, designs and trade marks?  Is it important for the business to have a catchy name that has been secured as both a company name and a domain name?  Would it help your decision if a high-profile investor has already agreed to invest in the company?

At first sight, if these criteria are met, the investment decision should be easy.  But when you look at the product, do you really want to invest in it?  Consider a real-life case, which apparently secured investment from Theo Paphitis on the TV programme, Dragon’s Den, shown on British TV last night.  The name of the product is BoginaBag.  It consists of a folding, camping stool (no wordplay intended) with a circular hole in it.  A plastic bag is inserted into the hole.  The user sits on the stool and does their business.

Some of the investors on Dragons Den dismissed this scornfully as investing in a bin liner.  Yet the company founder managed to secure offers from three of the Dragons, and accepted an offer from one of them, Theo Paphitis.  It is not clear from the company’s website whether this verbal offer has yet translated into hard cash.  We understand that not all investments agreed on the programme result in an actual investment, following due diligence, negotiation of a shareholders agreement, etc.

Turning to the IP position of the company, the following information appears as a footer on the company’s website:

“BoginaBag is a trademark of BoginaBag Ltd. …Pat. Pend. 0921898.3 RCD 001588096-0001 UDR Castle 2008″

Kate Castle is the name of the founder of the business.  RCD presumably stands for registered community design, and UDR for unregistered design right.  An Espacenet search reveals this patent application by Kate Castle.  A search of the above RCD number on the community designs register here revealed the relevant design.  We are curious as to readers’ views on the status or condition of this IP.

Although not stated in this website footer, it appears that trade marks have been registered with the UK IPO for both the name and a logo.

It appears from elsewhere on the website that Kate involved a company called Innovate Product Design Limited in the design of the product.

Innovate Product Design Limited also seems to offer IP services to inventors.  To quote from their website:

“We have a patent drafter on site who can draft a patent application for you, allowing you to self-file the application with the UK Intellectual Property Office. By doing this, you are avoiding the expense of using a patent attorney who acts as your agent and therefore, incurs further, steeper costs. Alternatively, should your application be particularly technical, or you need the services of a legal body acting as your agent, for example if your permanent address is overseas, we have a patent attorney with whom we are affiliated who offers preferential rates to all our clients.”

This company appears to be just the kind of company that might consider complying with British Standard BS8538 Specification for the provision of services relating to the commercialization of intellectual property rights, which was sponsored by the IPO.  See a discussion of the standard on the IPO’s website here.  From a brief look, we failed to see any claim of compliance with the British Standard on the company’s website.  We are curious as to the company’s reasons for not following this route, if that is the case; perhaps they felt, like us, that compliance would require jumping through some fairly pointless hoops.

Returning to the BoginaBag IP, it seems that the BoginaBag company has taken some advice on IP protection (but whether entirely from IP professionals is not clear) and has obtained and applied for some registered rights.  But how well can one protect a commode with a liner?

This real-life case example raises all kinds of interesting questions about investment, product selection, IP protection and use of advisers.  If you had been a Dragon on Dragon’s Den, would you have invested in this company?

Whats so bad about … indirect loss?

I spent a good part of last week helping a client “reach a compromise solution with” their customer over whether or not the contract should exclude  responsibility for indirect loss.  Being a risk averse lawyer, I was against removing indirect loss from the list of excluded liabilities (ie risking indirect loss suffered by the customer being treated as a recoverable loss that my client, the supplier, would have to bear).  We refined the terms of the exclusion clause,  got the client’s insurer to agree to the position and the contract was signed.

But in the process, I was forced to consider what is so bad about indirect loss and whether it was actually vital to exclude it. This took me back to

College

College and I found myself re-reading a number of cases that haunted my undergraduate days.  The detail is quite involved and I have posted a more complete update note here.  For those who don’t want to get bogged down in detail, the highlights are:

Damages for loss arising from a breach of contract can be recovered if either: (1) the loss can fairly and reasonably be considered to arise naturally (“according to the usual course of things”) from the breach; or, (2) the loss can reasonably be supposed to have been in the contemplation of both parties at the time at which the contract was made.

A loss “flows naturally” if a reasonable man would have realised that the loss was a “not unlikely” consequence of the breach.  “Not unlikely” means a less than even chance but something that is not unusual and is easily foreseeable.  Indirect loss falls within the second part of this test. Contracting parties generally try to exclude it for two reasons:

First, indirect losses are too remote and too speculative to be laid at the defendant’s door.  This is often true but do not forget that before the claimant can win their claim in court, the claimant has to show that the other party is in breach, that the breach has caused the relevant loss, that the loss is not too remote and can be accurately quantified, that the loss is not the claimant’s own fault and that the claimant has taken steps to mitigate the loss suffered. Seen in that context, indirect loss is still a Bad Thing but it is not inevitable that the defendant will be responsible.  The claimant will have to work hard to prove that the other party should pay up.

Second, the loss only arises because of a set of special circumstances and these were not factored into the price of the original agreement.  So, if the defendant is held liable, the defendant is made to bear a disproportionate degree of the risk.  This is a fair point where the customer is buying a standard product or service and paying a  standard fee – a situation where the unusual has not been allowed for in the pricing.  But it is a much weaker argument where the parties are negotiating a bespoke deal and therefore have ample opportunity to allocate the risk between themselves as they see fit.

I drew several conclusions from this.

The least risky course for potential defendants must always be to exclude indirect loss, if only on the basis that the more responsibility for loss the defendant can exclude, the better their position will be.

A risky course

But, it is not the end of the world if indirect loss cannot be excluded.  If there are specific concerns then it may be appropriate to allocate the risk by adjusting the price or by consulting an insurer.  Bear in mind that any claimant has significant obstacles to overcome before their claim for indirect loss will succeed.  In that context, accepting liability for indirect loss becomes a calculated risk.

Ultimately, the best course is to comply with the terms of the contract.  If there is no breach, responsibility for indirect loss is an academic question.