Opinion

OWNERSHIP

Who owns the IP in a business can often be an area of conflict.  There are two important questions to ask yourself as a business owner:

1. Do I own the bits that I designed?
2. Do I own the bits that others have designed for me?

Businesses often assume they own the IP rights in the technologies and designs created for them by employees and third party service providers because they paid for the work; but this is not always the case. 

The general rule is that the author or inventor is the first owner of the IP, however, there are exceptions to this rule, most notably when the IP has been created by an employee, contractor or the general public (in the Facebook context).

1. Employees:  If the author of the work is an employee acting in the course of their employment, then their employer will own the copyright and design rights in that work.
2. Contractor:  As a general rule if IP is created by an independent contractor, it belongs to the contractor. This is true even if the idea, invention or development is made within the scope of the contractor’s engagement or on the employer’s work site.  This general rule may be modified by agreement. For example a written agreement with the contractor may require assignment of all IP (and future IP) developed in the course of completing the contract.
3. Commissioning Rule:  If a third party has been “hired” (as an employee or contractor), then the employer/hirer will likely have commissioned the work and will therefore own in.
4. General Public:  The terms and conditions of Facebook state that you grant Facebook “a non-exclusive, transferable, sub-licensable, royalty-free, worldwide  license” to use any IP content that you post on or in connection with Facebook (within the restrictions of your Privacy Settings).  You also warrant that you own the IP in the content you are posting. 

Get it in writing

It is important that IP issues are dealt with upfront.  Employment, Contractor and Commission Agreements should include a robust IP ownership clause. For example:

“All work produced for the Employer by the Employee under this agreement or otherwise and the right to the copyright and all other intellectual property in all such work is to be the sole property of the Employer.”

COMMERCIALISATION

Research has shown that unless IP is integrated into a business plan it is unlikely to be commercially successful.  To survive and grow, a business needs to know how to capture, protect and manage IP assets, and how to avoid conflict with someone else’s IP rights.

There are two key stages to commercialisation: 

1. Planning; and
2. Execution (the value extraction part).

Planning involves the development of a comprehensive IP commercialisation strategy.  This includes identifing your IP position (market research), capturing your IP as early as possible, protecting your IP (through registration) and avoiding infringing other’s IP rights.

The first and last steps above can be achieved through Freedom to Operate searches.

Market Research and Freedom to Operate

Even if you don’t think IP is relevant to your business, you can guarantee someone else in your industry will be taking it very seriously.  For that reason, every IP strategy should start with a Freedom to Operate (FTO) search.

An FTO search will give you an idea of whether you will infringe anyone else’s IP rights should you commercialise a product.  FTO searches also allow you to monitor the new technologies being developed and protected by competitors.

Value Extraction

Commercialisation is the stage at which the strongest innovations are converted into commercial value.  Whilst you might have a clear vision of what you want to create, you may be unable to design a prototype, or have insufficient manufacturing or marketing know how to progress the idea.  Establishing commercial relationships with specialists and experts is essential to the commercial success of IP.  It is also extremely important that your ideas are protected before you discuss with any third parties.

There are three ways to extract value from an idea, product or technology:

1. Deploy it (i.e. develop, manufacture and sell it)
2. License it (i.e. let someone else use the IP in exchange for royalties)
3. Sell it (i.e. sell/assign the IP in return for a fee)

The majority of businesses extract value via route 1 (they incorporate the IP in a product and then they sell that product).  However, licensing and selling IP requires fewer inputs (risk, resource and time) and generates extremely high margin revenues.

Non-Disclosure Agreement

As a business owner or entrepreneur, you may be worried about the risk of disclosing confidential information to employees, independent contractors or joint venture partners. So how can you protect yourself?  The answer is the Non-Disclosure Agreement or “NDA” for short (sometimes known as a Confidentiality Agreement).  NDAs are commonly used, but like any legal document, you need to know what you’re entering into before you sign.  For information on Non-Disclosure Agreements so one of my earlier posts.

There is increasing awareness of IP rights, both commercially and legally.  Owners and creators of IP rights will usually look to exploit those rights for economic benefit.  Steps taken in the formation and structuring of the business will often be essential to realizing the true benefits of IP.  With proper consideration, the prospect for making commercial gain from IP can be greatly enhanced.  Check out the Intellectual Property Office of New Zealand website for more helpful information or get in touch with me.

Richard