Intellectual Property - Know It, Use It or Lose It
By Laura Spalding, Lawyer
with contributions from Shaun Restorick-Barton, Lawyer
The emergence of social media as a marketplace has proven that a business is only as successful as the brand it has nurtured. Everything from your Instagram handle, to your product designs and even the source code behind your software contribute to your business’ overall image, reputation and market share and are all examples of Intellectual Property (IP). For many businesses new and old, IP is the most valuable and enduring asset they hold.
If your business relies upon or generates income from its IP, it is essential to ensure that the IP is structured in a way that you can put it to work and make it profitable without having to worry about legal ownership of it.
Skype and Ebay’s IP debacle
In 2006, Ebay bought Skype for $2.6 billion. Being a software-based company, you can imagine that Skype’s core underlying technology is a hugely valuable piece of IP. Three years following the sale, when Ebay tried to on-sell Skype, Skype’s founders Niklas Zennstrom and Janus Friis claimed that when Ebay purchased Skype, they didn’t actually purchase the core underlying technology, which was owned by a separate company the two founders owned called Joltid. They claimed that Joltid merely licensed this IP to Ebay under an expiring term. Interestingly, Niklas and Janus appear to have used this core underlying technology to build a number of other successful products. If not for a long and drawn out litigation, Ebay’s purchase of Skype may have been rendered worthless and still, Niklas and Janus walked away with a piece of Skype from Ebay in exchange for the transfer of the disputed IP.
This example can be scaled to relate to any business at any stage, whether an early stage startup or even a business still in the ideation or development process. Say you engage a developer to build your app, what happens when you realise that the developer owns the IP in your app’s infrastructure and not you or your business? You might end up having to pay a licensing fee to the developer to use or publish that IP until you can buy them out (if they’ll let you). It may not seem like a big deal while your business is pre-revenue, but to try and regain ownership of the IP once your business becomes profitable can be incredibly difficult. For this reason and many others, it is critical to understand your IP and know who owns it.
Let me help you get started:
Understand your IP
IP is characterised as the creations of intellect and the mind which can be legally labelled and owned such as, a brand, an invention, trade secrets, industry know-how, an image or a song for example. To identify your IP, consider what you or others bring to the business.
Label your IP
In a majority of situations businesses and individuals must formally register their IP. IP Australia is the Commonwealth government agency that these rights are registered with. However, trade secrets, copyright, confidential information and circuit board layouts are granted various automatic protections.
The protections over IP grant the registered or automatic owner of the IP exclusive legal rights. These rights can be bought, sold, licensed and enforced.
Value your IP from the get-go
Prior to committing investment to a business, investors will consider the assets of that business and whether they are appropriately protected. Investors rely heavily on the value and security of a startup’s IP because often that IP is the only valuable asset the business has.
Having clearly defined and protected IP will provide ‘comfort’ to potential investors as it is often the IP that investors are interested in and which draws the initial investment in new businesses.
Aside from making startups more attractive and secure for investors, IP valuation can provide the following additional benefits:
Assist startups to determine the overall value of their business;
Provide businesses with a tool to measure and manage their assets;
Provide lenders and investors with security and backing for their investments/loans;
Potentially provide taxation benefits (tax deductions); and
Potentially reduce the proportion of business' net worth attributed to goodwill.
We can help you understand, label, protect and value the most invaluable asset you own. Through Cubed by Law Squared, we can provide you with the legal infrastructure to do just that.
For further information about this article, please contact Laura Spalding, Corporate & Commercial Lawyer at Law Squared.