Essential Legal tips: Scale your SpaceTech business to infinity and beyond!

The market for space technology in Scotland has expanded exponentially in the last few years, and with Scotland continuing to solidify its place as a key player in the European space sector, most recently with Rocket Factory Augsburg - RFA having been awarded the first Launch Operator Licence for the SaxaVord Spaceport , more and more tech companies are bursting on to the scene with exciting and innovative new solutions that could revolutionise the space industry.

Many Scottish space businesses are now at the stage of looking to “scale-up” - raise investment, win business, and increase market share. Scaling-up means realising growth and transforming the successes of the formative years to expand, grow and extract greater value from your enterprise.

For scaling your space business, much of the legal groundwork will already be laid, however it will be crucial to consider, review and update many of these aspects to ensure that they remain fit for purpose and align with your evolving business, in essence “future-proofing” for further growth opportunities.

Below is a list of key considerations for space tech scale-up business, designed to help Scotland’s space companies reach for the stars:

1. Corporate Structure – Getting Your House in Order

Business Structure

First, it is important to assess your current business structure. Does it meet your needs? This is an opportunity to assess if your corporate structure fits the expanded size, remit, and profits of the business. A change in business structure could be the right choice to take advantage of, for example, tax incentives, liability caps and exposure to greater investment opportunities. Whether you choose to operate as a partnership, limited liability company, or another structure, each has distinct legal implications.

Articles of Association

Second, as a limited company, is your business operating under the model articles of association under the Companies Act 2006? It is important to consider implementing bespoke articles of association, as in many instances this provides a more tailored governance approach, as well as an alignment with your business objectives.

Founder and Shareholder Agreements

A Shareholder Agreement and/or Founder Agreement will document from the outset the expectations of the founders in relation to how ownership shares, roles and duties are divided. It is an important tool in specifying decision-making in the business, timelines, dispute resolution procedures and entry or exit into or out of the business.

2. Intellectual Property (IP) - Protecting Your Creations

Identifying your IP – Recognising the Value

For many technology companies, intellectual property is the foundation upon which success is built. However, in order to properly protect and commercialise your IP, you need to identify and understand exactly what it is. Intellectual property can range from:

▪️ your branding (brand name, logo or slogan) which can be registered as a trade mark;

▪️ copyright protection for any original artistic creation(s) of your business, such as any software created or developed;

▪️ trade secrets that give your business a competitive edge; or

▪️ any invention or product, big or small, which may qualify for patent protection.

Before scaling-up your space business into this next phase of growth, it is imperative to ensure that you have not overlooked any IP assets. If in doubt, it is worth reviewing again if an IP asset should be formally protected.

Protection of your IP – Registration

As IP is often a tech scale-up’s most significant and valuable asset, although certain legal protections exist as a default right, formally protecting the business IP will be key for continued growth.

Therefore, it is important to consider your IP strategy, and that where appropriate, registered protections (patents, trademarks, design rights) are secured. Depending on the reach of your business, it may be worth considering whether IP registration is sought only in the UK, or if EU / US / other registrations would also be of benefit.

Documenting your IP

A review of licences, assignments, and agreements with employees and third parties, and their corresponding documentation will be required to confirm IP ownership and use rights. This will be a fact-finding exercise that will reveal the value being extracted from your IP assets. In particular, securing IP from third party contractors in writing from the outset will be important for the business.

Commercialising your IP

Effective commercialisation of your IP involves a strategic approach to maximise the value and competitive advantage of space tech innovations. Licensing agreements can be a powerful tool, enabling you to generate revenue through partnerships while expanding market reach without heavy capital investment. It is however essential to clearly define the terms of use, any royalties payable, and duration in these agreements to safeguard your IP. Additionally, exploring joint ventures with strategic market players in order to leverage combined expertise and resources can be an effective way to grow your IP portfolio whilst generating revenue.

3. Confidentiality – Protecting your business and ideas.

Proper confidentiality provisions within agreements can be an effective tool in protecting commercially valuable information such as trade secrets, information relating to a product or process, or customer details. These may be included, for example, in supplier contracts or employment contracts, and some circumstances may require a stand-alone confidentiality agreement or non-disclosure agreement (NDA).

It is important to understand where such confidentiality agreements are in play, their scope and what information is being protected.

Confidentiality agreements will benefit your start-up, where for example there have been minor unpatentable improvements to a product or a process but nevertheless it is still of commercial value and should be protected from competitors. They can also be important to ensure option of patentability is preserved so that there has been no “public disclosure” of inventions.

Your start-up may be scaling due to an expansion of the business’ product offering and it would be commercially savvy to, for example, protect new inventions while the filing of a patent application is pending.

4. Regulatory Compliance – Ticking the right boxes

Data Protection and Cyber Security

Data protection should be a top priority to safeguard sensitive information and maintain customer trust for any space tech scale-up. Any interaction of your business with the data of an individual person, be this email addresses, phone numbers, or financial information, will require compliance with data protection legislation, such as the General Data Protection Regulation.

Key considerations include implementing robust encryption methods to protect data both in transit and at rest, ensuring compliance with relevant regulations such as UK and EU GDPR and understanding your role as a data controller or data processor, and establishing comprehensive access controls to limit data access to authorised personnel only. Regularly updating and patching software to prevent vulnerabilities, conducting frequent security audits, and promoting a culture of security awareness among employees are also crucial. Additionally, investment into advanced threat detection systems, as well as having a well-defined incident response plan in place to quickly address any potential data breaches are key to mitigate data loss in the event of any data incidents or cyber attacks. Balancing data protection and security with scalable growth is essential to avoid costly breaches and ensure long-term success for your business.

Space Regulation

As the space industry grows in the UK, we are seeing more and more regulations being aimed at space companies in the context of commercial activities. Although a number of the regulations specifically target those companies involved in spaceflight operations, satellite launches, and space debris management, it is worth being aware of the implications of the relevant legislation aimed at space technology companies and considering the impact on your business. For example, the Space Industry Regulations 2021 provide specific obligations on spaceflight operators with regards to environmental impact, safety and risk management, licensing requirements overseen by the Civil Aviation Authority , as well as specific liability insurance in order to mitigate any potential damage.

From a more holistic perspective, historical space regulation such as the Outer Space Treaty 1986 provides much broader tenets of international collaboration, peaceful purposes, registration and transparency, which still perpetuates through the space sector today, albeit from a much more commercial perspective.

5. Expanding your Workforce – Building the right team

As your business starts to scale, you will no doubt start to bring more and more people into the fold. Knowing the right approach to onboarding your workforce, either as employees or contractors, means considering the longevity of the engagement with respect to the individual, whether or not they will be integrated fully in the business, and the control and independence that individual would have over their workload. There are also more practical considerations to be wary of from both a financial and legal perspective – employees have many rights under UK employment law, and as an employer you will need to ensure these rights are protected, as well as having the correct employers’ liability insurance in place. Additionally, contractors will be responsible for their own tax and national insurance contributions, whereas for employees this is managed by the business.

Another key aspect of growing your team is ensuring that the relevant agreements with employees and/or contractors have in place appropriate IP provisions. This is key in the context of your space tech scale-up, as any investor would want to ensure that any IP generated by employees and/or contractors of the company is owned by the company, and that sufficient transfer provisions are in place to achieve this.

6. Contractual Terms – Managing your customers and suppliers

Key Contractual Provisions

As you will no doubt have found, negotiating your commercial contracts with customer and suppliers can be a lengthy and tricky process in order to guarantee the best position for your business. Planning in advance and good professional advice is important. Below is a summary of some of the key contractual provisions to be aware of (alongside the key commercial terms) when negotiating such agreements, in order to best protect your space tech scale-up:

▪️ Intellectual Property – for technology companies, it is imperative to ensure that any agreement has sufficient IP provisions that protect the pre-existing IP of both parties. Be wary of any terms which seek to assign any of your IP, and be mindful that where any licences are granted to you or by you, that the relevant stipulations of such licences, whether these are exclusive, worldwide, royalty-based or royalty-free, can be complied with.

▪️ Liabilities/Indemnities – often the most negotiated part of any agreement, liabilities and indemnities are understandably important for any commercial technology business. Where possible, it is important to ensure that an appropriate liability cap is in place, limiting your contractual liability in the event of any loss or damage suffered by the other party. Furthermore, ensuring that any indemnities granted by your business are subject to the relevant liability cap, and that where possible such indemnities are limited in scope (for example, to direct losses) can help to minimise your overall risk exposure.

▪️ Obligations of the parties – whilst this may seem obvious, including a detailed description of the relevant goods and/or services being provided under an agreement, and clear financial arrangements and payment terms, are paramount to avoiding future dispute, and can ensure certainty when it comes to what is expected of either party. Whether you are the one providing or receiving the goods and/or services, always check that this is sufficiently detailed within the contract.

Standard Terms and Conditions

Whilst not always a priority for businesses starting out, scale-ups in the space sector ought to consider drafting a robust set of tailored terms and conditions which are complementary to your business offering. This can help speed up any client onboarding processes, and can serve as a useful starting point in any lengthy contract negotiations. Additionally, from an investor perspective, where a business uses a consistent set of T&Cs for its client base, this can be an attractive approach, and could potentially shorten any due diligence process connected with an investment.

Conclusion

There are no shortage of considerations when scaling up your space business, whether these be legal, financial, or commercial. We hope this served as a useful guide to some of the points which you may wish to consider in the context of your business.

Written by:

Callum O'Regan | Solicitor