Business Brokers

Intellectual Property – Just What Are You Selling?

More than ever intellectual property is a becoming an important issue in the transfer of business ownership.

In part this is down to a change in how business operates these days. With many more mainstream operations being sub-contracted, often really large businesses can find themselves with just about everything sub-contracted and the only real assets of the business being intellectual ones.

Another reason is related to the first and it is the ease with which large amounts of information can be moved in the internet age and indeed information insights which can be gleaned from huge data sets.

For smaller businesses a key issue can be not recognising the intellectual property when it is staring you in the face. When selling the business, this can be exploited by savvy business buyers who can use this lack of knowledge to put in a lower offer, or else use it to drive a working price down.

The reason for the lack of knowledge is often a mis-apprehension that intellectual property applies only to things like patents and published literature, but in fact it can be much less specific and formal than that.

The following are 5 blind spots that are often overlooked with respect to intellectual property or asset ownership which can create serious obstacles, or missed opportunities when selling a business.

1 – Company Brand

It seems to be almost self-evidently true that the company brand and associated identity in the form of logos, brochures, literature, letterhead, business cards, etc. should be owned by the company, but this is no longer automatically the case – even if you have paid for it.

Since recent changes in The Intellectual Property Act 2014, the default is that, unless clearly contractually specified,  the owner of a design will be the designer not the person who commissioned the design.

So unless you have a purchase order system that says specifically all commissioned design work is yours, or the designer has drawn up a contract which specifically surrenders intellectual property rights, then they own the brand – not you.

This may not have mattered in the early stages of a new business, but when the sales opportunity comes along a few years later it may prove to be expensive in asking the designer to surrender the intellectual property, or else in explaining to a potential buyer why you do not own it.

2 – Customers and Prospects

stealing ideasI wonder have you every heard any stories from other business owners about an employee stealing the business customer list and setting up a rival business on the back of it?

Often this new business comes with a new service angle that the real owner of the list has missed because they have been too busy making sure the errant employee gets paid each month.

As far as a potential buyer is concerned, they will want to know this list is transferable and secure as a change in business owners intellectual property can often be a signal for an employee to jump ship and take advantage of a certain amount of confusion as the new ownership properly takes hold.

The key point is to recognise that the customer, or prospect information is the intellectual property of the company and to make sure it is protected physically and legally plus ascribed an appropriate valuation as an asset when making any company valuation.

3 – The Proprietary Production/Delivery Process

Those companies that have solved a difficult getting to market problem by sub-contracting  the production, or delivery process may get a nasty surprise when coming to sell the business.

This is because the use of the sub contractor’s expertise to solve a particular technological issue may require the sub-contractor to undertake research and development to solve the problem. Unless this development is contractually owned by the end customer (your business), the development is theirs. This is of course not a problem until there is a dispute, or you come to sell the business. The potential new owner may well want the freedom to appoint their own supplier and not be held hostage in any way by a sub-contractor.

Just where these problems lie can often be difficult to see in an even moderately complex business and only come to light when a source is moved, or a supplier goes bust, or a potential buyer starts asking awkward questions.

One thing that does throw them up is implementing a quality management system such as that defined in the ISO 9000 standard. As this type of business systemisation is a useful way to prepare a business for sale anyway, it is certainly worth considering, if not already in place.

Another approach is using risk analyses related to disaster recovery to see where the weak points are in delivery, or production and use that knowledge to re-negotiate supply contracts on the basis of surrendered, or joint intellectual property.

4 – Company Domain Names

The chances are when you registered the company domain(s)  you did it in one of three ways:

  1. – registered it yourself in your company’s name
  2. – registered it yourself in your own name
  3. – asked, or paid someone else to do it

If the domain is in the company’s name there will not be a problem. If it is in your name it will need to be changed to be into the company’s name for the transfer of ownership. For a ‘.co.uk’ this may incur a small fee (about £12 at the time of writing).

The main problem area is where you have asked someone else to do it for you/your business.  Even if you have a paid a second party to register the domain on your behalf, there is no guarantee it will be in your name. This a common issue for a number of issues that can range from contract policy, deliberate mis-registration through to accidental mis-registration.

At first glance this may look like a trivial issue until you realise that search engines such as Google tie search engine ranking to the domain not the website and that domain age is a ranking factor. This means if you decide to put the web site on a new domain and do not submit instructions on the migration from the old domain to the new, you are in effect pretty much starting from scratch. For many businesses this may not seem to matter, but sometimes you only find out how good a job the website is doing for you when the phone stops ringing.

Nine times out of ten, mis-registration is accidental and does not present a problem to resolve. However, if there is a specific commercial policy on behalf of the domain administrator, or there is also a commercial dispute between you and the domain controller this can be a real obstacle and one which is sometimes very expensive to resolve.

If you are in any doubt use a whois look up to find out who really owns your domain.

5 – The Web Site

Of course a website can be anything from a brochure on the web to a key delivery or sales mechanism for the business. Much like the branding issue above, the look and feel of the design may not be yours.

Even if the branding design is owned by you, unless you have made the same provisions on purchase of the website design, you can still be caught in the same trap set by the The Intellectual Property Act 2014.

However, it gets more sticky than that. It is common practice these days at the budget end of website building to buy a template and resell it to the end customer. You often see this with websites built using content management systems such as WordPress.  This means a third party designer is involved – which you may not know about. Therefore making provision to ensure the commissioned design is yours may only reach as far as any custom elements the immediately contracted designer has supplied, which may represent less than 10% of the overall design. Often this is just placing the logo in the right place.

The long term implication of this situation may be unknown as it easy to miss as it is difficult to know what the contractual relationship is between the designer you have contracted and the actual designer of the website template. For example, the template may have been supplied for personal use only, but is in fact now being employed for commercial purposes by your business.  This could mean a claim on your business in the future as the actual utiliser of the template.

The same is true of any pictures used on the website where, if they have not been specifically supplied on a royalty free basis, or purchased specifically for use on your website, you could face a future claim.

For most business, most of the time, none of the above is an issue, however where ownership is changing hands, you will have to prove ownership of all elements of the website first before you sell it.

What to do

Some of the above is a bit scary, but it has to be said this small list of big things can be the tip of the iceberg. If you would like to take a look below the waterline, before your ship hits it – why not get in touch now for a no obligation discussion to review your business and get a grip on your intellectual property.

This entry was posted in A2Z Business Brokers: General, Business Management, Business Planning, Businesses for Sale, How to Value a Business, Selling a Businesses and tagged , , , . Bookmark the permalink.

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