In 2021, record numbers of patents, trademarks, and designs were filed in Australia. Various studies have also consistently shown that Australian SME businesses with registered IP rights employ more people and are more likely to achieve high growth. Is something shifting in the way we think about IP?
For many businesses, intellectual property (IP) holds a significant component of value and is an important asset for a business in attracting finance, creating a competitive advantage in the marketplace, and earning a return on intangible investment. It can also be an additional revenue stream for the business through licensing and/or sale of rights.
My own experience in dealing with thousands of SME businesses is that those businesses that truly understand the value of their IP assets, and how to protect them – end up more successful, more protected, and ultimately sell for a far higher value when they eventually exit the business.
An inability to understand the value of IP and a failure to take proper steps to protect it can lead to unexpected business costs or a loss of value at exit. Only a few years ago, the Australian Bureau of Statistics estimated 74.6% of businesses with 0 – 4 employees had no IP protection.
Here’s how you can start identifying the key areas of IP in your business.
UNDERSTANDING IP & OWNERSHIP
IP refers to creations of the mind; designs, trademarks, processes – they’re often wholly or partially intangible (you can’t reach out and touch them). It can be difficult for businesses to detect infringement or prove their ownership, and if you can’t prove ownership – it can be difficult to transfer value – which is why it is really important you have protections in place.
The value of IP is protected through IP rights – some require a formal process of registration (eg. Trademarks), while others do not need to be (and can’t be) registered. Unfortunately, some business owners also assume creations from within their business are automatically owned by the business (which is often not the case!).
IDENTIFYING DIFFERENT TYPES OF IP
Intellectual Property comes in many forms. You should start by investigating what is relevant to your business. Common IP of value across businesses include the brand sitting in the name of the business and its products, the website and promotional material, written material of the business, and software code where the business is a developer of software.
Once you have identified the key areas of IP, your next steps are to set out to protect them.
COPYRIGHT AND TRADEMARKS
The most relevant types of IP protection are copyright and trademarks.
Copyright is an automatic protection in Australia for “bodies of work” – including art, designs/drawings, literature, music, film, broadcasts, and Code/computer programs. Many businesses don’t understand the value of copyrighted works in their organisation.
A trademark on the other hand is a ‘mark’ that distinguishes the goods or services of your business, for example, the business name, a product or service brand name, or a logo. You can have unregistered trademarks, but to stop others from using or registering them, it is important to get a trademark registration in each of the countries where you use it. Unfortunately, many businesses don’t understand the importance of trademark registration until it’s too late.
PATENTS AND TRADE SECRETS
Some businesses through operations or innovation create inventions or new processes. If that’s you- patents are an important area for you to understand. A patent is a right granted in relation to a device, substance, method, or process which is ‘new, inventive and useful’. A patent holder has the right to prevent others from making, using, or selling the same method, process, device, or substance, for the period of the patent.
Trade secrets refer to confidential information such as secret formulas, processes, and methods used in production. One of the keys to enforcing this right is demonstrating that the company took reasonable measures to protect the information, so it is important you can show you have limited access to this information, and also that you have built-in protections through contracts, confidentiality agreements, and appropriate clauses in agreements with people who might have access to the information.
CONTRACTS AND AGREEMENTS
Legal agreements should be in place with anyone who is creating (or has created) or handling IP in your business. Ensure ownership of IP is clear, assignment is dealt with in writing, and responsibility for IP protection and infringement is set out. If someone creates IP for you (eg. a consultant), you must have an agreement with them that assigns you the IP. Otherwise, they might retain the underlying rights to what they have created – they may even be able to use it with one of your competitors. Worst case, they could also potentially prevent you from using it in certain ways.
The best place to start is by reviewing any agreements with suppliers, customers, and key personnel to ensure IP is dealt with properly.
ENFORCING YOUR PROTECTION
Enforcing an IP infringement can become expensive, especially if protections haven’t been built in using a logical approach – or the case isn’t clear cut. Some businesses, particularly those which have a substantial component of their value living in IP, choose to take out insurance to ensure that funding for any IP enforcement (or defense) has adequate funding. If that’s something that interests you – tailored IP & Trademark insurance is available for SMEs – visit aspectinsurance.com.au.
THE COST OF NOT PROTECTING IP
Leaving IP unprotected can have potentially expensive outcomes such as loss of client databases, an inability to stop other people from using your business’s IP, and even your own logo! In the case of patents, failure to register designs before they’re in use by someone else means you might lose the ability/rights to use them (and any profit that comes with it).
Not having sufficient protections built into your agreements with suppliers, customers, staff, partners, distributors, and manufacturers, may mean that they can share your designs with your competitors.
Failure to protect IP not only leaks in value as your business grows, but it leaves you vulnerable to losing the underlying rights to your own IP – or worse, not being able to prove your business owns it when it matters most (at exit).
Protection of IP is often a fairly simple and inexpensive process – and certainly, one area of the law where I have seen time and time again that prevention is absolutely a lot cheaper and easier than the cure!
Ensure you understand and lock in that value – the sooner, the better (you never know when a buyer will come knocking)!
Joanna Oakey, the author of Buy Grow Exit, is the founder and Managing Partner of the commercial law firm, Aspect Legal and host of the successful business podcasts Talking Law & The Deal Room. She brings decades of experience-based insights from working with business owners (and their advisors) on acquisitions, exits, and general commercial legal matters.
Get in touch to arrange a FREE initial 15 consultation with our commercial team to soundboard your protections, your IP, and how to ensure they’re leak-proof today. [Book Now]
* This article has been adapted from a version that was recently published by Forbes Australia. Click here to see the published version.
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