Like any other business, a family business will develop intellectual property and must deal from time to time with intellectual property issues.
What is intellectual property?
Intellectual property (“IP”) is difficult to define. However, it generally refers to some original product of the mind.
Common forms of IP include trade marks (which protect brands), patents (which protect inventions), copyright (which protects original works, e.g. literary and artistic works) and designs (which protects product appearance). As a broader term, IP also can encompass intangible things such as confidential information and know-how.
Does our business own intellectual property?
Regardless of what a family business does, it will always have one item of IP – its brand.
The brand can be the most valuable asset of a business, quite often easily surpassing the value of physical property, plant and equipment combined. This is especially true in a family business context, where the name of the business is synonymous with quality.
A family business will also often develop other forms of IP. This can include existing know-how, manuals and processes. It can also include ideas, systems or products in development, which can be eligible for protection.
Capturing intellectual property
It is often true that family businesses are not good at capturing their IP. Usually, because so much effort goes into building the business, protecting IP is not seen as a priority and is forgotten once the business is mature.
However, IP in any form can be a valuable asset. The better it can be captured, the more value it can add to a business (particularly if the business is seeking to attract investors, or if there is an intention to sell).
IP is a broad term that covers a range of legal rights with different rules and rights. Some forms of IP can be simple to capture through a formal registration process that provides clearly defined enforceable rights. Other forms of IP are granted automatic protection. However, some other forms of IP can be difficult to formally capture and rely more on practical strategies to ensure protection.
Intellectual property in a family business context
Family business owners and managers do not need to be experts in understanding IP. However, it is important that they understand the value of IP and when they need to seek further assistance.
One of the biggest IP mistakes is leaving protection too late, or adopting a DIY approach. For example, with patents and designs, once the creation is made public, protection may no longer be available. Similarly, once a patent or design application is filed, it is often too late to remedy fatal flaws regarding the scope of the application.
Conversely, unlike patents and designs, a brand name is usually subject to some form of ‘common law’ protection and can be potentially registered as a trade mark at any time. However, leaving it too late can mean that others may register similar trade marks, leading to potentially significant dilution of rights and brand value.
Another common problem is that ownership of the IP is often not clearly defined in the family business context. While it is accepted that the IP is the property of the ‘family’, there is no clear understanding as to which entity should hold the IP and what internal arrangements should exist regarding its use. There is also often no clear written transfer of title of IP from one generation to the next.
Correctly defining ownership of IP in a family business context can be crucial to its validity and enforceability. For example, in the event of a trade mark dispute, an incorrectly filed application can result in cancellation of a registered trade mark. In the event of a sale of the business, uncertain ownership of the IP can lead to significant additional expense and complications.
Any successful family business should ideally develop a relationship with a specialist IP advisor, or ensure their existing legal advisors have appropriate expertise in IP issues. IP issues can usually be identified fairly quickly, and appropriate and cost effective actions taken to appropriately capture IP where possible.