Intellectual property and your business … the value of your business could rely on it but is it really yours?

Recently, when acting for Robert, a client purchasing an existing business, we came across a business owner David (the vendor) who had not thought about intellectual property (IP).  This left David trying to sell something that he couldn’t prove he owned!  Why?  Because, as is the case with many businesses, a significant part of the value of David’s business was intellectual property but he had not thought of it as such.  As a result David had not taken any steps to protect it and make sure he owned it outright.

In our experience, it is a common mistake.  There is a general misconception about IP and what it is.  Okay … so what is it?

IP concerns creations of the mind.  In the context of your business it might be a clever  trading name, a smart business system or an ingenious retail product or service.  Put simply it is a business asset.

The element of creativity in IP seems to make many business owners think that they must not have any.  They may not have been good at art or creative writing at school so assume that they are not creative.  This is a misconception because IP protects that which is “original” and “distinctive.” In most cases that is simply things that are not copies of other things.  You may correctly be getting the feeling that the threshold is pretty low!  So how is this relevant in the context of your business.

Back to David …

David had built up his business over time and had positioned himself well in the market.  He had built a well-known brand and had excellent Information Technology (IT) systems in place for service-delivery.  Those two things were integral to the success of the business.  When making enquiries for Robert as to the ownership of the branding and the systems, we found that David was unable to provide us with the information that was in our client Roberts best interests.

We had expected that the trading name and logo would be trademark protected, given the significant market recognition of the brand.  They were not.  Likewise we had expected the IT software facilitating the business service delivery to be protected and again it was not.

Trademark Protection

It is common for a company to trade under the mistaken belief that registering their company name and/or domain name prevents others traders from using a similar name.  This is not the case.  Only Trade Mark registration can grant exclusive rights to use of the trading name.

A trade mark is a unique identifier, commonly referred to as a brand.  They can include words, logo, colour, sound and even smells – and any combination of those things.  Broadly speaking, anything that can be graphically represented.

Therefore, despite the value of the strong branding and resulting market position of the vendor in our example, he could not put a premium price on those aspects because he could not “sell” exclusive rights to that branding.  Our client took those necessary steps immediately after taking over the business.  Ironically perhaps, Trade Mark registration can cost as little as the $112.50 registration fee. Compare that to the potential cost to your business if you don’t protect your brand, both while you are trading and also at the point of sale.  We recommend that all business owners at least consider whether or not trade mark protection is suitable for their business, and particularly in the context of added value to that business in the event of a sale.

Copyright Protection

Copyright applies to original works and attaches to the original expression of an idea.  It protects the particular manner of expressing an idea or conveying information.

It is also common in business to produce things like promotional material, business systems and, of course, retail goods or services.  All these things and more are potentially your IP, most likely copyright material, and of significant value to the success of your business. Often however you have arranged for others to produce the material for you.  Unlike other areas of intellectual property there is no formal registration process attaching to copyright material so the best way to protect such material is to put in place contractual arrangements to put ownership beyond doubt.  If you do not you could be left with little say as to who owns what, because copyright law will determine those matters if a dispute arises.

Back to David …

David, the business owner in our example had software developed by an IT specialist to enable him to cost-effectively deliver the services his business offered.  The computer software was crucial to the success of the business but the lack of documentation around its creation meant that when David came to sell he couldn’t be sure that he owned the software. This was because the software was a “literary work” under the law and he had not paid for its creation.   The IT specialist had been his nephew.  Even though David’s nephew was unlikely to dispute ownership while his Uncle owned the business (hence the lack of documentation) Robert didn’t want to take on the business without documented evidence that the software was owned by the business.  David was fortunate that his nephew was happy to sign an agreement transferring ownership to the business to aide its sale.  However, under any other circumstances, this could easily have significantly lowered the value of the business and/or prevented the sale.

Lessons For You

Be aware that much of what is currently enabling you to be successful in business can include Intellectual Property worth protecting.  Do not leave it until the last minute like David to find out what it is and to protect it.  It may be as simple as thinking about your business differently in light of what you have just read and taking steps yourself.  You may however need to talk to your professional advisor.  Whichever, taking action may well be one of the most beneficial things you do for your business this year!