Intellectual property (IP) is widely talked about but poorly understood.

Most entrepreneurs are aware that intellectual property may be very important to a business, but are not and cannot be aware of legal details, recent case law, or differences in the law between jurisdictions.  Most entrepreneurs have far too much on their plate to become experts in this specialised legal field, but they do need to know enough to make sense of information and advice provided to them and to make strategic decisions on allocation of resources.

For many start up businesses intellectual property (or “intellectual assets”) will be the key to the business. It may be a new product or service that business provides, or an idea about the delivery of products or services, or the branding and marketing for a proposed business.  Whatever it is will usually be an idea or an approach which the entrepreneur thinks will set the business apart from others in the field.

Intellectual property may be the way to maintain that difference which distinguishes the business from its competition so entrepreneurs do need to understand the basics and to know when to get specialist advice.

What intellectual property do you have?  IP Audits

Many entrepreneurs are aware of one or two items of intellectual property a business may possess, such as a patent or a trade mark, however almost every business will have much more intellectual property than its executives realise.  The first step in protecting and exploiting intellectual property will be to know just what it is that you have:   Conduct an intellectual property audit. 

What is important is a methodical approach to reviewing the technology, branding, business resources (such as software), and other material required for operations.  This may include key documents (order forms, manuals or the like), confidential information (such as customer lists and supplier lists), or distinguishing branding or “get up”.

An IP audit may appear a daunting task the first time but once you have an IP register up and running you can implement procedures to capture and add to that register as IP is produced.  The advantage is that you will be aware of what you have, what might be used against or by your competitors, and how to market the difference to potential investors and purchasers of the business.

Employment Agreements

Much intellectual property (particularly confidential information) resides in the minds of employees, including secret formulae, know how, and customer and supplier lists. 

How much of this information could walk to your competitor if your employee takes up a job with that competitor?

It is important that employment agreements contain provisions clarifying that all intellectual property produced in the course of employment, and to which the employee is exposed during their employment, remains solely the property of the business.

Courts are reluctant to impose strict limitations on ex-employees which interfere with their ability to procure employment, however if the restrictions are reasonable they will be enforceable, and having these clauses in your employment agreements may prevent many disputes arising. 

Intellectual Property is Territorial

Almost all intellectual property rights are territorial in nature i.e. a trade mark registration in New Zealand can only be enforced in New Zealand, and could not be enforced in Australia or any other country.  If you intended to export your product and market it in Australia under the same trade mark used in New Zealand then you may need to conduct a search of the Register of Trade Marks in Australia to be sure that no-one is using that mark.  You may want to register the trade mark if it is not yet registered by another party.

This territoriality applies to “freedom to operate searches” also through which your intellectual property advisor will identify the IP risks involved in marketing a particular product or service in a jurisdiction.  Such searches are usually jurisdiction by jurisdiction, so you must inform your intellectual property advisor of the jurisdictions you are interested in and prioritise them if the budget is limited.

Intellectual Property Rights Assist Commercialisation

Most entrepreneurs think about intellectual property in terms of obtaining a patent or trade mark registration and then using it to keep others away from “your patch”.  If your patch is only one jurisdiction (such as New Zealand) or even just one part of the market within New Zealand, you might consider licensing your intellectual property rights to other parties in other markets.  This can provide you with an income stream which you would otherwise not have had.    Commercialisation of intellectual property through mechanisms such as licensing provides the opportunity to gain new income streams from existing property without significant additional effort (although a great deal of effort may go into finding the licensing partners and negotiating with them of course!).

Intellectual Property May be Subject to Security Interests

Intellectual property is another form of “property” and as such it can be used as security for a loan.  If you are taking an interest in an item of intellectual property (say purchasing it) it is prudent to check the personal property security register (“PPSR”) to confirm whether other interests are registered against that property.  Don’t be caught as the party third or fourth “down the line” trying to get a slice of whatever value is left.

Many Benefits of Intellectual Property Rights are Silent or Invisible

It is common for owners of intellectual property rights to feel frustrated at the difficulties and costs involved in enforcement of those rights.  Having spent money obtaining a patent some businesses will express regret if they cannot afford to enforce the rights down the track.  Deterrence is a key value in any IP.  If you have such rights for years but only face potential infringement recently, then it is possible that investment in obtaining the rights in the first place has already worked to keep competitors away.  For this reason it may be important to communicate your rights to others, for example by referring to patent application or patent numbers on products and by using the ™ or ® symbols.  (Care must be taken in relation to doing these things within the letter of the law).  Most disputes over IP rights settle, but you will not ever get to discuss settlement if you do not protect your right in the first place.

Conclusions

Although almost all entrepreneurs will be aware that intellectual property is important, it is worth digging a little deeper to find out what intellectual property you have, what competitive advantage it provides, whether it is being exploited to its potential, and whether it remains a good investment.

Being aware of these issues will also help you know when you need specialist advice and how to prioritise your legal spend.