John Simpson, Shift Law, @shiftlaw, Toronto, ON
Every business, big or small, established or start-up, has intellectual property (IP). Business names, domain names, websites, customer lists, marketing plans are all types of IP. If managed properly, these can become valuable assets that can be licensed to others, sold or even securitized for loans – like inventory or equipment, but often more valuable. If it’s not managed properly, however, IP can depreciate quickly, evaporate or walk out the door. It can also become a liability if it turns out to belong to someone else.
The following are six ways in which most small businesses engage with, or ought to engage with, IP:
1) Creating IP through branding and innovation: e.g. choosing a name for the company or product, building a website, designing a new product or service, etc.;
2) Securing ownership of IP through contracts: e.g. copyright assignments from outside software developers, trademark assignments from founding partners (to ensure that the company’s name and goodwill belongs to the company and not to them);
3) Managing and administering IP: e.g. registering trademarks, protecting confidential information through non-disclosure agreements and internal policies, IP audits, etc.;
4) Enforcing rights in IP against others: e.g. policing unauthorized use of IP, cease and desist letters, infringement actions, etc.;
5) Monetizing IP: e.g. selling and licensing IP to others, using IP as collateral for loans, etc.;
6) Avoiding exposure to IP infringement: e.g. availability searches, due diligence, obtaining third party indemnities and warranties (especially in the case of user-generated web content and social media).
Small businesses need to think about IP early on. Failing to do so can be extremely costly and disruptive. Imagine, for example, launching a new business under a great name and getting sued two years later by someone else across the country who registered a confusingly similar name as a trademark after you started using it. You would need to decide at that point whether to spend tens of thousands of dollars defending your right to use the name in court or else agree to rebrand and lose all of the goodwill you’ve acquired in the name. This situation can be avoided by applying to register your business name as a trademark at the earliest opportunity, which can be before you even use it.
Furthermore, imagine hiring a software developer at great expense to help you design or improve a new product, only to see him or her reap the fruits of your time and investment by starting his or her own company to directly compete with you, or taking the work product to your competitor. This situation can be avoided by a properly drafted non-disclosure agreement and/or a carefully worded copyright assignment agreement, executed at the outset of the relationship.
Situations like these happen all the time and they can be devastating to a small business at a critical time in its growth. Be sure to minimize the risk of these things happening to your business by thinking about IP early on and turning it into an asset and not a liability.