The importance of intangible assets and how to protect them

All business owners will be aware of the need to protect intellectual property (IP) through the likes of patents, trade marks and copyrights. However, it is also important to understand the value intangible assets have for your business, as IP and technology specialist Jessica Bent explains.

What is an intangible asset?

Intangible assets such as software, patents and databases are likely to be critical to the lifeblood of a company. If a company has gone to the trouble of seeking and obtaining a patent, then it will know the process and how important patents are to protect that company’s innovation. Patents are granted territory by territory and give a monopoly to working/selling that patented product or process.

So far, so good.

Software and databases are, however, sometimes the unknown lifeblood of a company. If a company is in the space of selling software (whether as a service or a product) and it has gone beyond start-up/scale-up, it will likely know how important that software is to the continuity of the company. The issues we see are with early-stage companies or fast-growing companies (the latter might actually be with significant turnover) where the value of the software/databases to the company is unknown or unrecognised.

Often such businesses are cash-poor or time-poor (or both), and although the company may have a great idea which it is rolling out, it has not invested in effectively tying down the ownership of the software/database concerned, nor the licensing of it. We see businesses that license software/databases which they don’t actually own the rights to, and worse, providing guarantees on these to customers. Some also license the software/databases on poor contracts, or on no written contract at all. If a business is granting rights to software on an unwritten contract, there is a “contract” in place; the problem is that it’s all verbal.

Sounds risky? Yes, it is.

How can businesses protect their intangible assets?

Businesses can protect their IP in several ways. The first step is working out if the business owns it, which is not always easy.

If we take the example of a business (Business A) which has paid £500k to another business (Business B) to develop some innovative software which it has integrated into Business A’s software product. Without a contract transferring the IP from Business B to Business A, the starting point is that Business B owns the IP in the software its created, not Business A. While there are some rights that will be granted to Business A by implication, the following are the key initial steps to take when thinking about rights to intangible assets:

1. Make sure you own the IP, and get contracts in place to transfer the IP to your company if someone else has created this on your behalf.
2. Consider what IP can be registered, what rights are automatic (i.e. don’t need registration) and how much funding you have to put into protecting your intangible assets.
3. Create a priority list with the most critical IP rights down to the less critical IP rights and work through your list to seek the appropriate protection.

Businesses should be aware of the difference between registered and unregistered IP:

Registered IP rights

• Patents (protecting new and inventive products or processes)
• Registered designs (covering the appearance of a product)
• Trade marks (which protect brand names, logos).

There are threshold criteria for registering the IP rights above, and some of them are not available if the product/process is in the public domain.

Unregistered IP rights

• Copyright (protects films, written works, software, databases, art, photos, music, web content)
• Design right (shapes of objects which are not commonplace).

Unregistered IP comes into existence automatically if the criteria (set out in law) for such IP rights exist. Take the example of software; if a minimum level of skill (not high) has gone into creating it, copyright exists automatically.

How can companies monetise intangible assets?

Monetisation of intangible rights is sometimes obvious and sometimes not. For example, software licensing, SaaS arrangements where software is provided more as a service than as a product, and website development are all relatively obvious methods of monetising the automatic copyright that exists in software. Similarly, creation of music/films and permitting others to listen/view these are another means of monetising the copyright in the music/films.

However, sideways steps are often not thought of by businesses when they wish to maximise their return on IP. Take the business that has registered its trade mark for coffee, and products/merchandising related to coffee; a potential sideways step might be for that business to license its trade mark to another company to sell mugs/cafeterias/merchandising relating to its coffee. This type of licensing to another brand is an effective way to create a lucrative stream of royalties.

Brand licensing is bread and butter to content and character owners like Disney (think Star Wars films and then Star Wars action figures/merchandising/apps), but it can be for all businesses where that business has put sufficient trade mark protection in place which allows it to then license its trade mark for other services/products. Equally this can create an unexpected royalty stream for businesses which have trade marks they no longer wish to use; they can license them to others, which keeps those trade marks alive and not subject to challenge for non-use.

Similarly if a business has a patent but no longer wishes to work on that patent or wants to focus on product sales in one country, it can license a company in another territory to sell those products through a patent licence.

If you have any questions about protecting the assets of your business, Jessica would be delighted to assist and can be reached on the details below.