Maybe because it is intangible, as opposed to tangible assets such stock or real estate, people often fail to adequately protect and maximise the value of their intellectual property. However this is a terrible way to undermine the value and future of your business.
In the modern economy, especially with the rise of technology and increased globalisation, intellectual property forms a key aspect of a business’ value. This is particularly relevant to tech startups (who tend to have little other assets) and producers of creative content (artists, authors, designers and so on).
Even more traditional businesses derive great value and sometimes even direct income from their IP rights. Google, Apple and Amazon’s brands are currently valued at over $100 billion dollars each, and the world’s biggest franchisor McDonald’s generates roughly $36 billion dollars of revenue a year from licensing its brand to franchisees.
Indeed, most investors or buyers today place high importance on well-protected IP. The other side of that coin is that businesses that fail to adequately protect their IP may not be valued highly or attractive to investors. Another major issue is that failing to take IP law into account can land you in ridiculously expensive court cases.
This article will give you’re a brief outline about what exactly intellectual property is, what protections are available, and what are the benefits of protecting it.
What exactly is intellectual property?
A person or business who creates creative content acquires rights to that content – the content becomes the “intellectual property” of the person. ‘Content’ can include almost anything – literature, music, artworks, designs, recipes, software code, trade secrets, technology, inventions etc.
You can claim different types of IP protections depending on what content you are trying to protect. The common categories of protections are:
- Copyright – usually artistic content, examples including literature, photographs, recipes, songs, artworks but can also include things like software code.
- Trademarks – logos, brand-names, and even sounds or scents sometimes if they are strongly associated with a certain business.
- Patents – new innovations and inventions, for example medical inventions such as a pacemaker, special engineering products and sometimes technological innovations.
- Designs – products that have special shape, patterns, ornamentation or configurations can be protected. For example, the designs of an iPod or piece of unique furniture.
Whenever an author or artist creates tangible content, they automatically obtain intellectual property rights to that content. There are really easy examples: any musician composing a song or an artist drawing a sketch. Copyright remains incredibly important for businesses, especially as copyright extends to things like software code.
Copyright is probably the simplest and most common form of IP protection. Whereas most other intellectual property protections require a person to register their interest or at least satisfy some legal requirements, copyrights automatically vest in the author on creation. Even the usual copyright notice you come across and the use of the © mark is not essential (though recommended). Also, it’s completely free. In fact, as the author of this journal article, I automatically obtain copyright over its content.
The idea behind copyright is that a subsequent person cannot create work which is similar to the person who owns the copyrights. Therefore, if someone came along and wrote a book significantly similar to Harry Potter, JK Rowling would be probably be able to obtain compensation. Recently, the song “Blurred Lines” by Robin Thicke was found to have infringed the copyright of a 1977 track “Got to Give It Up” by Marvin Gaye, with Thicke ordered to pay $5.3 million and half of the song’s future royalties.
A trademark is essentially protection of a brand name. A person can obtain trademark protection for a phrase, logo, sound or even scent, so that others would not be able to use it. Apple have registered trademarks over the phrases “apple”, “iphone”, “ipod” and also the logo design of the apple. McDonalds has a registered trademark for its name, it’s logo design of the golden arches, and also some meal names such as “happy meal”.
Hungry Jack’s provides us with the best example cases for basic trademark law in Australia. When the international franchise Burger King came to Australia, they found out that there is already a local operator which held a registered trademark for “Burger King”. Accordingly, the Burger King franchise has to operate under the “Hungry Jack’s” name in Australia. More recently, Hungry Jack’s are attempting to force another local operator to stop using the term “Whopper” for one of its meals.
Trademark protection is a lot more formalised than copyright. A trademark usually needs to be registered to be effective, and there is a formal application process which takes close to a year (and involves ongoing registration fees). Also, a trademark will not always be granted. Generic or descriptive phrases such as “Good Computers” or “Sydney Gym” will be difficult to trademark. On the other hand, unique words like “Atlassian” or “Nike” are easier to trademark.
Patent protection protects a new invention or innovation created by a person. Patents are very famous and very powerful – many patents have changed the world and have launched massive businesses. Edison famously patented the electric lamp in 1880, with more recent examples include the Lazy-Boy reclining chair and even the GoPro’s harness system which attaches the camera to the users or other objects. Interestingly, patents can also be obtained over systems and methods: Google, Facebook Apple and DropBox all have a series of patents relating to the way they organise their data and systems.
As the polar opposite of copyright, patent protection is the most formalised, most expensive and hardest to obtain of the intellectual property rights. In order to obtain patent protection, a person has to make a formal application and the examiner must be satisfied that there is really a new invention which must be protected (which is a high bar). The complete process takes around two years and it is usually very expensive. Crucially, it is really easy to forfeit your rights to a patent – if a product is released without the creator applying for a patent quickly, they will not be able to obtain a patent. At the moment, obtaining patent protection in Australia for software is extremely hard.
Australia also offers some protection for creative ‘designs’. This concept sits somewhere between copyright (which protects content) and patents (which protects function). The design protection allows one to protect an artistic appearance of a product. For example, Apple registered designs for the appearance of the ipod, iphone, ipad and even their chargers.
Naturally, design protection is particularly relevant to industries which prioritise appearance and physical design of a product (for example, the fashion and homeware industries). Designers often try and obtain design protection over a purse, the bottle design of a perfume, a piece of furniture, or even just an item of clothing. This is distinguished from patents, which protect functionality, and accordingly are more prevalent in industrial fields such as engineering and technology.
Design protection also requires a formal registration process, which stands somewhere between trademark and patent in terms of complexity – it is not too expensive or difficult, but you must show that you are the original creator of the design (including internationally). Crucially, design protection is very transient – design protection lasts a maximum 10 years.
The benefits of intellectual property protection.
In almost every type of business, taking concrete steps to protect your intellectual property is essential.
Brand protection (trademarks)
On a very high level, any business promotes a certain brand and reputation, and that business would be wise to take all proper steps to ensure others are not able to imitate that brand. This operates on two levels:
Brand protection – your products are associated with a certain quality. You must ensure no other business is using your name to sell inferior products, which would damage your brand. For example, if someone was selling low quality boots as RM Williams boots, the RM Williams brand would be devalued; and
Preventing profiteering – you have invested a lot of time and money into building your brand name, and you should not let someone ‘freeride’ off your efforts. For example, when someone sells fake Chanel bags, they are essentially profiting off all of Chanel’s advertising, marketing and brand power, without having to actually pay Gisele Bündchen anything.
Brand protection is achieved through obtaining trademarks for one’s logo, business name and usually also your main product (or service) offerings.
Please note that obtaining a registered business name does not equate to a trademark and does not provide you with intellectual property rights over that name.
Business methods, secrets, content, inventions and systems
(patents, designs and contractual warranties)
A lot of business are successful because they have developed certain inventive or beautiful products, creative content, or even certain business models or systems which allow them to gain a competitive edge over their business rivals.
It is important for these businesses to lock down this valuable intellectual property. In order to do this, business rely on various intellectual property protections:
- Copyright to protect creative content. This is usually reinforced with copyright notices, and traditionally stops other businesses from creating content which is similar to yours.
- Patents and designs to protect specific products, services or systems. Due to the cost and complexity, this is usually a balancing exercising as businesses have to pick and choose what merits an actual application.
- Contracts to protect methods, confidential information, and trade secrets. Any smart business, particularly start-ups and innovative businesses, would have watertight IP, confidentiality, non-disclosure and restraint contracts with its employees, contractors, and sometimes even customers. It would be prudent to also require an indemnity in relation to an IP issues. Some businesses may even require key persons to sign IP assignment deeds as conclusive evidence that the IP belongs to the business.
Intellectual property may often be a business’s most important asset but it is often poorly protected and neglected by business owners. This results in the business being undervalued by investors or buyers. Business owners should be aware of the wide legal protections they can rely on to protect their IP and maximise the value of their business. In particular, business owners should ensure their contracts have effective and comprehensive intellectual property clauses and other protections.