Starting a business with another person can have enormous benefits – shared workload as well as double the experience, skills and networks.
But plenty of business partnerships have gone wrong – and in most cases it’s because they had little structure with no regard given to protecting intellectual property (IP).
Belinda Breakspear, Partner at McCullough Robertson Lawyers and specialist intellectual property lawyer, says protecting your IP not only makes it easier to operate as a business partnership, it also looks good for investors.
“IP protection and ownership should be kept top of mind,” she says.
“The value of a company often sits with the IP. If the IP is not protected through the required registrations, or your IP house is not in order (i.e. you do not own the IP), investors/businesses will often be reluctant to buy in, collaborate or partner with you.”
Here are four things you should do in order to lock down your IP.
1. Get it right from the start
Breakspear says one of the first considerations when setting up a business should be around what IP each person brings to the business, as well as who will own any new IP created as part of a collaboration.
“Careful consideration should be made when dealing in collaborations where intellectual property is likely to be jointly developed,” she says. “It is not enough to simply say that the IP will be held jointly. Joint IP ownership can be tricky, so often it is best for one party to own the IP and the other to have a broad licence to use it.”
She says some of the common mistakes businesses make is failing to safeguard their brand name by not acquiring a trademark (such as Hungry Jacks not being allowed to use the name Burger King in Australia) and disclosing your IP before protecting it (think Kambrook not filing a patent for the multi-adaptor power board).
Nick La, serial entrepreneur and co-founder of the newly-launched recruitment app Weploy, says he and his business partners sought legal advice from the outset.
“Unique IP is core to Weploy’s value proposition,” he said. “With any new concept comes the risk of others trying to replicate it, so it was important that we protected our business, right down to its code.”
“Owning our IP is a priority of huge importance, which is why we laid out expectations from the outset, consulted our lawyers from day one and did our research to ensure we worked with Australia’s leading IP law firm.”
2. Prepare for the worst
La says he and his business partners envisaged a worst-case scenario, where one of them left the business and issues around IP arose, and worked out a plan.
“We all understood that it was something we had to lock in before we started our journey together,” he says. “This can be a difficult conversation to have, particularly because co-founders are usually more than just business partners and this is definitely the case with our founding team.
“We consulted our lawyers and created a business partnership under a company structure where each founder is protected, particularly if unforeseen circumstances occur or the business undergoes any major changes.”
3. Consider third-party players
Breakspear says not understanding the law as it relates to third party contractors is a minefield, and all business owners need to check each contract to ensure they own the work.
“Don’t assume that simply because you pay for something you will own the IP in it,” she said.
“Generally any intellectual property created or developed by a third party outside of your organisation, such as third party contractors, will be owned by the party creating it even though you have paid for it.”
She said this is particularly important if you are collaborating with someone outside your organisation who is creating IP.
“Having the right contracts in place at the start is much better than trying to fix up these things down the track.”
4. Keep communicating
La says business owners need to keep an open line of communication.
“Having had experience in other businesses, I’ve now become very diligent in understanding my partners and the importance of being transparent,” he says. “Any previous issues I’ve experienced have been due to a lack of transparency and failing to set clear expectations so I would probably focus more on ensuring that was better addressed.”
He also recommends keeping discussions on a business level, even though you may be personal friends or even related.
“It’s imperative that you approach business matters formally, ensure everyone is comfortable and communication is kept open,” he says. “Ensure everything is documented and agreements are formalised. Verbal agreements don’t provide enough protection in the event that a working relationship breaks down.”
This article is designed to provide a summary and general overview of the subject matter covered for your information only. It is not intended to be nor should it be relied on as a substitute for professional legal and financial advice. You should seek your own independent legal and financial advice before acting or relying on any of the content contained in this article. ANZ makes no warranties or representations regarding the accuracy, currency or completeness of the content contained in this article. No liability is accepted by any member of the ANZ Group of companies for any error or omission, or any loss caused to any person relying on the information contained in this article, except where such liability cannot be excluded.
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