Myths about IP

Myths about IP2018-12-12T14:02:46+00:00

Myths about IP

Fiction: IP rights are not valuable assets which can be used to provide proper lending security

Fiction

IP rights are not valuable assets which can be used to provide proper lending security

Facts

IP rights are assets and can be used as security

Explanation

Balance sheets of large corporations often include significant valuations for IP. IP rights are used as security by lenders. For example, the value of goodwill attached to unregistered trade names may provide added value to a company’s balance sheet and additional security for a prospective lender.

 

Fiction: I am a shareholder of a company and I create IP. All my IP belongs to that company.

Fiction

I am a shareholder of a company and I create IP. All my IP belongs to that company.

Facts

Without a specific assignment of IP from the shareholder to the company, the IP remains the property of the shareholder.

IP is not respectful of company structures. Unlike other forms of property, intellectual property can be assigned by its author before it is actually created.

Explanation

IP is not automatically transferred by reason of participation in a legal structure such as a company, partnership or trust.

As a general rule, his/her employer owns IP created by an employee in the course of his/her employment. Otherwise a specific assignment of IP is required. It is preferable that any assignment be in writing.

 

Fiction: When a person leaves a job, he or she cannot subsequently get employment in a firm which competes with his or her previous employer.

Fiction

When a person leaves a job, he or she cannot subsequently get employment in a firm which competes with his or her previous employer.

Facts

A person who leaves does have the right to compete against their former employer, but in so doing, they cannot use that former employer’s IP, including trade secrets.

Explanation

Restraining a person from working in a particular manner after that person has left employment is, prima facie, illegal. An enforceable restraint of trade provision to achieve this objective requires an appropriate contract and solid commercial justification, which must be deemed reasonable in the circumstances.

 

Fiction: If my business partner fails to fulfil agreements regarding the running of our business can I exclude him or her from the business?

Fiction

If my business partner fails to fulfil agreements regarding the running of our business can I exclude him or her from the business?

Facts

There is no general right of exclusion due to non-performance in the law of partnerships, trusts or companies. Only a court can order the exclusion of a participant and even then, only on specific grounds after an expensive, longwinded court case.

Explanation

A speedy, cheap and predictable right of exclusion on the grounds of non-performance can arise only from carefully drafted agreements between a trading vehicle and each of its participants. Few businesses (less than 5 percent) presently take the trouble to make such agreements.

 

Fiction: I have my company in place with good prospects. Why won’t venture capitalists invest in me?

Fiction

I have my company in place with good prospects. Why won’t venture capitalists invest in me?

Facts

Venture capitalists require well-researched plausible business plans, which provide prospects of considerable return to the investor and a particular kind of company structure in place before making investments.

Their return on their venture capital investment will only occur if the investee’s predictions about profitability of the business are correct. Accordingly, the venture capitalist must hedge his/her risk if the investee’s predictions prove wrong.

Explanation

For a venture capitalist, the risk involved in making the investment is high, so careful due diligence and additional agreements between the trading vehicle and its participants are required to manage that risk.

 

Fiction: IP is an intangible asset. There are no revenue consequences of moving it about.

Fiction

IP is an intangible asset. There are no revenue consequences of moving it about.

Facts

Certain IP rights (e.g. patents, goodwill, designs, and copyright) are an identifiable and negotiable asset which attract capital gains tax (CGT).

Explanation

The Taxation of Chargeable Gains Act 1992 recognises the proprietary elements of IP as assets capable of attracting CGT.

 

Fiction: IP does not show up in the accounts of a business.

Fiction

IP does not show up in the accounts of a business.

Facts

IP is an asset which some businesses do identify and value in their business balance sheet.

Explanation

Coca-Cola’s balance sheet ascribes over 85 percent of its value to its trade mark. Your accountant should be able to provide a valuation in accordance with accepted professional standards.

 

Fiction: Banks do not recognise IP and will not lend against its value.

Fiction

Banks do not recognise IP and will not lend against its value.

Facts

In the past commercial banks have been reluctant to recognise IP as collateral for loans to a business. They will now.

Explanation

The misunderstanding of and difficulty sometimes encountered in selling IP has made banks cautious about accepting IP as collateral on a normal business loan.

 

Fiction: It is necessary to register all IP rights before there is any entitlement to any IP protection.

Fiction

It is necessary to register all IP rights before there is any entitlement to any IP protection.

Facts

Some IP rights arise (copyright, goodwill) as a matter of course – others (patents, trade marks, designs) require application to the UK IPO.

Explanation

No registration is required for copyright or circuit layout rights. Common law provides automatic protection for unregistered trade marks and trade names, which have been used and have developed associated goodwill. Information, which is truly confidential, is also protected without the need for registration. Patents, trade marks and designs all require registration with the UK IPO. Plant breeder’s rights and domain names also have to be registered.

 

Fiction: Formal IP rights are only granted for products that can be manufactured.

Fiction

Formal IP rights are only granted for products that can be manufactured.

Facts

IP rights address a number of assets that cannot be manufactured including, trade marks, trade secrets and plant breeder’s rights.

Explanation

IP rights are granted to protect not only those products that can be manufactured, but also those that brand or represent a company, i.e. a trade mark. Formal rights can also be granted for a new plant variety. Plant breeder’s rights give the owner of the new plant variety or its reproductive material exclusive rights to market (s.11 Plant Varieties Act 1997) the plant for at least 25 years.

 

Fiction: IP laws favour larger corporations.

Fiction

IP laws favour larger corporations.

Facts

IP laws protect all businesses equally. IP also respects the small and the financially challenged businesses. It rewards creativity and the existence of goodwill, irrespective of business size or financial capacity.

Explanation

IP laws can be used by all businesses, regardless of size, to protect their investments in original work or innovation against rip-offs. In fact, many small businesses have successfully used their IP to fend off attacks from larger competitors.

 

Fiction: Only large corporations bother with IP rights because they are so expensive to obtain.

Fiction

Only large corporations bother with IP rights because they are so expensive to obtain.

Facts

IP protection does not need to be expensive although obtaining patent rights, especially world wide, can involve significant cost.

Costs involved with IP are generally associated with the research and development process, or the need to undertake infringement procedures – rather than the actual acquisition of those rights. Accordingly, IP is for all sizes of business – from the very small to the multinational.

Explanation

As there are no registration procedures for copyright or circuit layout rights in the UK, and because the law provides immediate protection for confidential information and for goodwill, a considerable level of protection is available with little or no up-front expense. However, you must ensure you follow the correct legal steps for protection. Registered trade mark protection can be very cost effective depending on the trade mark chosen and the strategy used for its protection.

Registered design protection is also reasonable. Although a standard patent protection at first appears to be expensive, the benefits of registration may far outweigh the costs.