Successful entrepreneurs understand the importance of protecting their “IP”—their unique ideas and other intellectual property. Protecting its IP can increase an enterprise’s value and encourage further investment. In some cases, timely IP-related decisions must be made to avoid losing the benefits of the protections.
If your endgame is to be acquired, then it is even more critical that your IP house be in order when the buyer knocks on the door.
As in-house counsel for Lawson Software, a global provider of ERP software, I was responsible for managing the corporate IP portfolio as well as the due diligence review of the IP assets of any potential acquisitions. It always amazed me how businesses, both large and small, paid little attention to their IP until they were under the pressure of a potential sale or acquisition, and then a fire drill would ensue as questions were raised and the valuation of the business was put in jeopardy. In some cases IP issues caused the deal to tank. These issues, if addressed earlier, might have been eliminated or mitigated.
Lesson learned: Don’t wait until a buyer is in the midst of due diligence to fix ownership or other critical IP issues. Here are some examples of where timely decisions are necessary:
Patents - In the United States, timeliness of patent filings has taken center stage as a result of the recent movement from a “first to invent” to a “first to file” approach. This significant change in our patent laws will lead to even earlier discussions of whether or not and when to file a provisional or complete patent application.
Copyrights - The ability to recover damages for copyright infringement may be limited if a copyright registration is not timely filed with the United States Copyright Office.
Trademarks - By filing a federal trademark application with the United States Patent and Trademark Office, you gain priority over any applications with a later filing date. Since a trademark application can be submitted based upon an intent to use a mark, you can preserve your rights even before actually using the mark in commerce. Getting an early filing date can be critical.
Agreements - Agreements related to the ownership of intellectual property require special scrutiny. Just a few words in an agreement or the absence of appropriate language can relinquish ownership of core intellectual property. These ownership issues can be difficult to correct after the damage has been done. Remember the twins who allegedly made early contributions to Facebook? Attention to the proper use of agreements to cover ownership of IP is of paramount importance for any new business venture.
How can you get your IP house in order and avoid later issues?
First, make sure that you have a thorough understanding of what intellectual property you own or might be acquiring. The best way to capture this knowledge base is through an IP Audit.
What areas should the IP Audit cover?
· Clarify business objectives and strategy regarding IP
· Create an actual inventory of IP assets
· Identify the status and pedigree of IP assets
· Review agreements, notices, and other relevant business practices and procedures necessary to maintain protection
· Confirm that the IP portfolio covers actual or planned products and services
Once the necessary information is collected, a report can be generated that will help to identify any risk and protection issues as well as uncover opportunities to increase the value and levels of protection for these assets.
You might be surprised at the amount of valuable information you will discover and how easy it may be to correct any issues. It is always easier and less expensive to fix issues and problems without the demands and pressures of another party questioning your practices or whether you own what you think you own. Don’t wait for these issues to be discovered in the course of a due diligence review conducted by an interested buyer or investor. These discoveries will only serve as an impediment and distraction in negotiations.
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