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Selling your Business: Transferring Intellectual Property

In a previous post, we discussed the process of registering a trademark in Australia. Here we will look at how important it is to account for Intellectual Property in the sale of a business.

Intellectual Property Australia observes that intellectual property is the “property of your mind or proprietary knowledge and is a productive new idea you create”. This includes inventions, trademarks, designs or processes that you come up with. Hence, slogans and logos around branding may all be intellectual property. Intellectual Property gives you exclusive rights for a restricted duration and within certain boundaries. Many businesses neglect their ownership of their intellectual property and its inherent value; indeed, 67.1% of businesses with 0 to 4 employees use no form of Intellectual Property protection methods (Australian Bureau of Statistics 2012). Commercial entities can innovate and expand their brand as IP rights are protected through the creation of the business themselves. Protections include the use of patents, copyright and registered designs and trademarks.

There are two main ways to transfer IP rights: licensing and assigning.

An Intellectual Property Agreement is effective when you want to:

  • Transfer ownership of Intellectual Property in writing;
  • Transfer ownership of newly created Intellectual Property Rights when joining a company as a co-founder or during the start-up phase;
  • Transfer ownership of Intellectual Property Rights from new employees to your company;
  • Transfer ownership of Intellectual Property Rights from your business as a sole trader/partnership to your new company.

In licensing, the licensor will transfer the right to use the IP. It will usually involve a long-term business relationship between licensor and licensee. The licensee will pay a fee for the right to use it, either through a lump sum or installment payments. Note that a licensor can opt to grant an exclusive, sole or non-exclusive licence. This will determine how many parties will be able to use the IP. Contracts may be flexible and further restrictions can be added so that IP may only be used for a particular purpose, class of product or geographical location.

Assignment is the complete transfer of IP ownership from the assignor to the assignee. The agreement must be meticulously drafted to ensure that both parties understand their respective obligations. Getting the services of an expert IP lawyer to assist with the agreement’s finalisation is recommended. Indeed, the contract will include an irrevocable transfer of commercial rights to the assignee; as it would be a one-time deal, parties are not expected to have further endeavours about the business and how the IP will be used after the agreement. Unlike installments of royalties with a licensee, the assignor will usually receive the payment in a lump sum from the assignee. It will include many considerations such as a profit component and market value and should be determined very carefully.

As licensee or assignor, your team should always perform due diligence which includes determining the market-value and profitability aspect attached to the IP.

If you are considering selling your business, you need to consider how you wish the IP aspect is managed. To ensure that every step of the process is correctly handled, it is important that you have a skilled professional assist you.  Here at Harris Gomez Group, our knowledgeable team has a wealth of experience in helping both companies and individuals with their IP needs.

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Harris Gomez Group is a Common Law firm, with offices in Santiago, Bogotá, and Sydney. We also have legal teams in Mexico, Peru, Brazil, and Argentina. Over the last 16 years, we have been supporting foreign companies with their growth in Latin America and Australia. Many of our clients are technology companies, service providers and engineering companies that focus on the mining, energy and infrastructure markets.

To better understand how we can support your management team in the Region, please contact Cody Mcfarlane at cmm@hgomezgroup.com