small business intellectual property

Selling your business? Gain control of your intellectual property first

A recent Ernst & Young report reveals that nearly half of all Australian companies believe they are in a well-structured financial position and could make the preparations to acquire another business within 30 days if necessary.

The message seems clear: businesses small or large must either be prepared to grow or be prepared to receive an offer. For businesses heavily reliant on IP, whether an offer is received and ultimately accepted can depend on whether a company can establish clear IP rights in its key technology and chain of title to that IP. So what can businesses do to get their IP in order?

Are your IP registrations up to date?

A common misconception is that the registration of a business, company or domain name confers exclusive rights in that name. This is not true.

Business and company name registrations are no more than legal requirements and registration does not give the owner any exclusive right as such to use the name. Similarly, registration of a domain name does not give exclusive rights to that name. To have a proprietary form of IP that grants exclusive ownership rights in a name, you must have a registered trade mark.

Trade mark protection is the most effective way to protect the names, brands and ‘get up’ of businesses, and ensures that money and time invested in a business is well preserved. Registered trade marks are protected country by country, so if you trade or sell products overseas, you should have registered trade marks in those overseas countries too.

Businesses should ensure that all of their important logos, brands, designs and technology relevant to its business operations are identified and subject to the appropriate trade mark, patent and design applications or registrations in the jurisdictions in which they are used (both in Australia and internationally), and cover all the necessary goods and services relevant to those jurisdictions.

Businesses must also ensure that the owner’s details on each application and registration are kept up to date on the relevant central register.

Are you trapping and protecting new IP?

Just as it is important to keep existing registrations up to date, businesses should also be diligent in identifying and recording new IP assets as they are created or acquired. Regular IP audits should be performed to determine whether or not these new IP rights are being trapped, evaluated and registered, whether rights are being used effectively, who owns the rights, whether the rights are being challenged by others and even if third parties are infringing those rights.

Such audits can prove invaluable in helping businesses to identify and rectify any IP issues which will inevitably be uncovered during a future sales negotiation. A comprehensive and up to date register of all the IP assets owned and used by a company is an essential and in many cases invaluable component of any business management system.

Look before you leap

Not conducting IP use and availability searches (often called ‘freedom to operate’ searches) before launching a new product or service can result in a business being forced to change or cease using a product or their name and branding. Without proper searches, you may find your new product, name or logo infringes the IP rights of a third party and you could be forced to rebrand, redesign or even withdraw the product from sale.

Establish the chain of title to IP

You must also ensure that your business has the ability to sell your IP rights to a potential buyer. Many businesses believe they own various important IP rights when in fact they do not.


Generally, employers own any IP created by an employee during the course and scope of their employment. However, employers will not usually own the IP created by a contractor on behalf of a customer (for example, software developers and graphic designers), unless there is an express written IP assignment. This misconception is all too common.

Matters such as these should be considered at the outset of engaging a contractor and appropriate agreements assigning IP to your business should be entered into during preliminary negotiations before work commences. If you are considering selling your company or business, an analysis of what has happened in the past should occur prior to the sale process to ensure all employees and contractors have signed appropriate agreements.

Warranties

If you are selling your business you will usually be required to give comprehensive warranties to the buyer that suitable protection has been sought in respect of all IP owned by your business and used in connection with its operations, that details of all such IP have been disclosed to the buyer, and that you are able to and will transfer all IP ownership to the buyer.

You will also be required to give warranties to the buyer that there are no third party interests that prejudice the ownership or use by the buyer of the IP and that ownership and use of that IP has not and will not be subject to any third party claims for infringement. These types of warranties are quite usual but in order to feel comfortable giving them (or to qualify them if needed) appropriate IP due diligence needs to have occurred.

Increase the value of your IP

All too often businesses can fall into the trap of neglecting to maintain and increase the value of their IP. Ongoing investment in research and development and the marketing and promotion of the corporate brand is essential to establish and maintain brand recognition and reputation in the marketplace and to increase the overall value of the business.

Less obvious is that time and money should also be spent on IP enforcement to prevent infringers from diluting brand value and eroding market share. Businesses can also consider obtaining insurance to cover the potentially high cost of IP enforcement litigation.

Higher offers will be made to those businesses which have invested in the protection, exploitation and sophisticated market positioning of their intellectual property.

Why is this important?

If you are selling your company or business, the business’ title to IP must be clear and established. A clear and established chain of title to IP is paramount in ensuring your ability to give good title and to stand behind what will usually be comprehensive IP warranties attached to the business sale. To avoid problems in the future, you must be able to prove now that your business owns what you say it owns.

Conclusion

Be organised, prepared and ready. If you are considering or looking at selling your company or business these issues should be addressed now if you wish to maximise your chance of a successful sale.

–Malcolm McBratney is a partner with McCullough Robertson Lawyers,

Related Stories