Common IP Myths Busted — Part 1: Knowing What You Own
26 April 2021
Author: Sarita Schröder
As the value of intellectual property in business has increased, so too has companies’ knowledge about how best to protect, commercialise, and enforce their rights. However, in our work as IP lawyers, we still regularly encounter many persistent misconceptions on the topic. In this blog series, we examine and debunk some of the most common of these.
You can find links to the other parts of this blog series at the end of this post.
Myth #1: Our Company Does Not Have Any IP
When we assist our clients with due diligence inspections in connection with mergers and acquisitions, it is no rare occurrence to find that no information on the target company’s IP portfolio has been disclosed. When we enquire about this, a startlingly common answer — even in relatively large transactions — is that the target company does not own or generate any IP due to the nature of its business (e.g., the provision of services).
However, regardless of the nature of a company’s business, such a statement is bound to be false. At the very least, each company has a company name and usually also holds some domain names. In addition, the company probably uses some brand name or other sign to indicate the commercial origin of what it offers. These can qualify as trademarks even if the company has not registered them. Moreover, the company is likely to create various types of proposals, presentations, advertising copy, etc., which can all enjoy copyright protection. The company may also have invested in compiling vast amounts of data in databases to which it can hold database rights, and it may possess proprietary information constituting trade secrets.
The above is just to name a few examples. Thus, even if a company is not a lean, mean R&D machine with an extensive patent portfolio, it certainly owns and generates at least some IP that it should be aware of. In fact, it is widely acknowledged that these days, on average about 80% of a company’s value is made up of intangible assets, which can generally be protected through IP rights.
Myth #2: We Have Paid for It, so We Own It
A typical way for a company to come to possess IP is by acquiring it from a third party. For example, the company may hire a branding agency to design a unique visual image, or it may engage a freelance software developer to code a bespoke computer program. In addition, in carrying out their everyday tasks, the company’s employees probably create a wide array of IP-laden work products for their employer.
Paying service fees and salaries can create a sense of ownership of the outcomes of the work. However, IP ownership is not transferred automatically by virtue of payment. Instead, the company must specifically agree with its service providers that they assign all relevant IP rights to the company. The same applies, for the most part, to the company’s employees. In other words, if the company’s employment agreements do not include an IP assignment clause, the company may not own the rights to what its employees have created on the job (software is an example of a common but limited exception in many jurisdictions including Finland and Sweden).
Furthermore, even if the company has made sure to acquire the necessary IP rights from its service providers and employees, it cannot be sure of whether it can take advantage of those rights without first carrying out the necessary freedom-to-operate studies to ensure that doing so would not infringe pre-existing third-party rights. Finally, unless the company protects its IP rights through appropriate means and takes the necessary steps to maintain and enforce them, it may end up losing them. These are topics that we will dive into further in the next posts in the series.