October 2019 | Alex Shdidi
When business owners are in the initial phases of building a business one aspect often overlooked is the protection of intellectual property (IP). This is understandable as the business owners are often thinking about cash-flow, increasing their customer base, marketing and the like, all of which are vital for the business. However, neglecting the IP needs of your business could prove costly in the long run. One such situation may occur when a prospective purchaser of the business is looking to ensure that all IP rights will either vest in the company being acquired, or in the event of an asset purchase, will vest in the purchaser.
What is IP?
IP is one of the most valuable assets of a business and can broadly be defined as creations of the mind or intellect that can be legally owned. Think logos, slogans, colours and names associated with your business.
How is IP created?
IP can be created in many ways. An example relevant to most businesses in today’s technological environment is the website design and content. The typical manner in which business owners set up and maintain websites is to enter into service agreements with a web designer. The service agreement will dictate the terms on which the website will be designed and maintained, which will typically include IP provisions. The IP provisions will state (among other matters) who will own the created IP in the website and in what capacity.
In the context of a website design, it’s important the IP provisions state that the IP created vests in the business owner and not in the service provider. If it doesn’t, the website – in whole or part – may not be the property of the business owner which can have a major impact on the value of the business when it comes time to sell. It’s also important that any IP created does not infringe upon third party IP rights and warranties. Provision should be made to that effect so that the business owner has a right of recourse against the service provider in the event of third party IP infringement claims.
These provisions, which may seem trivial in the initial phases of building a business, can be very costly in the long run if IP terms are not drafted adequately. We recommend legal advice is obtained prior to entering into service agreements of this nature with a provider.
If you require further information about IP rights in service agreements call our business law experts today on 9231 2466.