Family Business – Acquisition and Disposals.

Intellectual Property (IP) can often be the most important and valuable asset for many businesses. There are various different types of IP protection but generally, for family-owned business’, the most relevant IP rights in the UK are: trademarks, copyright, patents, design rights and confidential information/ trade secrets.

The IP rights that many family-owned business’ hold and generate during the life of a business can be incredibly personal, and the lines can become blurred as to ownership and protection. The inevitable questions that will arise when either looking to acquire or dispose of an IP-rich business is who owns the IP and how has it been used and protected? It is therefore important to ensure that the right mechanisms are in place to evidence both the chain of title and detail how such rights should be identified, protected and dealt with from inception.

Some potential purchasers may agree to acquire the business where the chain of title and ownership cannot be guaranteed, or where protection and enforcement of the IP cannot be evidenced, but there could be some negative effect to the value, particularly where the IP is at the core of the business. By ensuring that a robust IP policy is in place will help facilitate the business through its transition, whether this be to the next generation or a third party.

IP Strategy and Management

An IP strategy is the planning of actions designed to maximise, identify and document a business’ IP rights. IP management is the way in which a business effectively controls its rights. Both will form part of any successful business’ IP policy, and by having such a policy in place will help during a due diligence process.

The importance of an effective IP policy

All IP rights have a value. They should be properly identified, protected and enforced in order to achieve their full potential. Family-owned business’ often lack formal family business arrangements, which can result in the value of the rights being underestimated, IP being overlooked and not properly recorded or enforced or, on the other hand, a family business conflict arising. Therefore, for a family-run business’ it is especially crucial to carefully set out a strategic management plan to address those IP rights that should, and do, properly vest in the business. The development of an appropriate strategy should be done at the outset, or as soon as possible, to avoid any actual or potential disputes (including family disputes) later down the line, and also for the purpose of “knowing your IP” and how it is, has and/or will be protected. This will be a key issue for any potential purchaser and will likely be investigated during a due diligence process.

A strategic management policy should take into account the following:

• Start early and review regularly – an IP strategy will be fluid with the business’ growth and development, but it is useful to put an IP strategy in place as early as possible to help demonstrate the chain of title and how the IP is, has and/or will be protected, enforced and documented. Regularly review the internal strategy and the business’ IP rights, including both internal and external IP.
• Ensure employment contracts (including for family members) adequately cover IP ownership and confidential information.
• Consider protection strategies – whether you will seek registered protection or rely on unregistered rights, and in what circumstances. Ensure, where registered protection has been applied for, that such applications are made in the correct name/entity e.g., the company name, if the IP is that of the company, rather than an individual family member. Where IP has wrongly been registered in the name of an individual this could cause issues later on.
• Consider how you will enforce your rights or how they have been enforced - unenforced rights can be lost, so enforcement is important and knowing the costs and implications of the same from the outset can help avoid any nasty surprises later on. Knowing your competitors and their routes to market are vital to deciding how best to enforce.
• Develop a system, which enables any IP disclosures by staff, including family members, to be assessed in advance so as to ensure that no potential IP is lost and/or hindered by such disclosure.
• When disclosing rights to third parties, using the rights of third parties, or allowing third parties to use any rights of your business, ensure that there are clear policies and valid agreements in place (e.g. NDA’s and licensing arrangements). Retain copies of all agreements in easy-to-locate places.
• Evaluate and document your rights and know what is most important for you to protect and retain. This will help inform how you want to protect your rights and how you want to enforce them. Record any renewal deadlines to assist with continuity of protection.
• Keep records of the development process of any new works (copyright), designs (design rights), inventions (patents), and brands (trade marks) from inception through development to filing or use. Records should include dates and the names of individuals working on projects.

How we can help you

Brabners can either provide ad-hoc advice, work with you to develop effective IP policies or if you need some assistance in reviewing your business’ existing intellectual property rights, we can conduct an IP audit. 

IP audits can, however, be much further reaching and include analysis of any gaps in protection, as well as give an overview of third-party rights and include advice on IP strategy and IP management.  Audits can also be conducted on target companies and are therefore particularly useful during an acquisition or disposal of a business.

Regular auditing will allow you to understand your IP position, and identify strengths, weaknesses, opportunities and threats. Those who do not take time to understand their IP portfolio can risk stagnation in the marketplace, poor growth and even infringement issues leading to time-consuming and costly litigation.

Whether you’re just starting out or if you are looking to acquire or dispose of your family-business, either to the next generation or a third party, or if you just need a review of your current position, a Brabners IP audit can provide the information you need to ensure that your family-business is properly protected now, and for the future, and ready for commercial success.

For more information, please contact us or a member of the Family Business Team.