Who Owns the Intellectual Property in Your Family Business?

When families talk about business succession, the conversation usually centres on the obvious things.

Who will own the shares? Who will become a director? Who gets the business premises? Will one child take over the business while the others receive different assets?

But there is another question that can be just as important:

Who actually owns the intellectual property?

For many established family businesses, intellectual property has been accumulating quietly for years — sometimes decades. The brand, website, customer database, operating manuals, photographs, software, product designs, processes and confidential know-how may all contribute substantially to the value of the business.

The problem is that ownership of those assets isn't always where the family assumes it is.

And that can become particularly important when a founder retires, dies or hands the business to the next generation.

Intellectual property doesn't disappear when the founder does

In a recent episode of Elise Explains IP, I spoke with Sarah Carey about the Victorian Supreme Court decisions in Re Estate of Vaughan; Dunn v Dunn-Vaughan.

The case provided an important reminder that intellectual property can survive its creator and needs to be considered when administering an estate.

But that raises a broader issue for family businesses.

What happens when the intellectual property associated with a business isn't actually owned by the entity carrying on that business?

It's more common than you might think.

"It's our business, so surely we own the IP?"

Not necessarily.

One of the difficulties with intellectual property is that you can't determine ownership simply by looking at who uses it.

Consider a family business that has operated for 30 years.

Dad founded the business and originally registered the domain name personally.

His daughter redesigned the logo while she was studying graphic design.

A marketing agency created the current website.

An external developer built some bespoke software.

Mum wrote the original operating manual.

The trade mark was registered personally by Dad long before the company was incorporated.

Everyone may regard all of those things as belonging to "the business".

Legally, however, they may have very different owners.

That distinction might not cause any practical problems while everyone is working happily together.

Succession is often when those problems emerge.

Owning the company doesn't necessarily mean owning the IP

This is an important distinction in succession planning.

If you inherit shares in a company, you are acquiring an interest in the company.

But that doesn't magically transfer assets that were never owned by the company in the first place.

Imagine the next generation taking control of a family business and discovering that:

• the key trade mark is registered personally to the founder;
• the domain name is held through an account nobody can access;
• important software is licensed to an individual rather than the company;
• copyright in the website was never assigned by the developer;
• photographs used throughout the business were created by an external photographer without clear ownership arrangements; or
• critical business processes exist only in the founder's head or personal files.

Suddenly, what looked like a straightforward transfer of the family business isn't straightforward at all.

IP ownership can also become a family dispute

Family business disputes are often as much about control as they are about money.

If two siblings inherit different parts of a family enterprise, who gets to use the family brand?

Can one sibling leave and establish another business using the family name?

Who controls the website and social media accounts?

Can both businesses access the customer database?

Who owns a recipe, design, methodology or system developed by the founder?

What happens if the trade mark was personally owned by a parent and passes under their Will to someone who isn't involved in running the business?

These questions are much easier to answer when ownership has been documented before a succession event.

Trying to reconstruct the position afterwards can be considerably harder.

Intellectual property should be part of succession planning

Good succession planning isn't simply about deciding who gets the shares.

It should look at the business as a whole and ask what the next generation actually needs in order to continue operating it.

That includes the intangible assets.

For a family business, I recommend working through five questions.

1. What intellectual property does the business have?

Start by identifying it.

Depending on the business, that might include trade marks, copyright, registered designs, patents, domain names, software, databases, photographs, manuals, marketing materials, confidential information, trade secrets and proprietary business systems.

Don't limit the exercise to registered IP.

Some of the most commercially important intellectual property in a business may never have been formally registered.

2. Who actually owns each asset?

This is where assumptions need to be tested.

Check trade mark and design registrations. Look at contracts with developers, designers and marketing agencies. Review software arrangements. Check who registered important domain names.

Where valuable material was created internally, consider who created it and in what capacity.

The answer may be the company.

But don't assume that it is.

3. Does the ownership structure still make sense?

Sometimes there is a perfectly legitimate reason for intellectual property to be owned outside the operating business.

For example, a business may deliberately hold valuable IP in a separate entity and license it to the trading company.

The important thing is that the structure is intentional, documented and understood.

An IP structure created accidentally over 25 years of doing business is a very different proposition.

4. What happens to the IP when the founder leaves?

Consider retirement, incapacity and death.

Who will control registrations and renewals?

Can licences be transferred?

Who has access to accounts, passwords and records?

Does the estate plan deal appropriately with personally owned intellectual property?

And, importantly, does that plan align with the broader business succession strategy?

5. Is everything documented?

If ownership needs to be transferred, deal with it properly.

If one entity owns IP that another entity uses, consider whether an appropriate licence should be documented.

If contractors are creating valuable material for the business, make sure the contract addresses intellectual property ownership.

And keep an accessible register of the business's important IP assets.

Start with an IP audit

You don't need to solve every issue on day one.

The first step is simply understanding what you have.

I've created a free IP Audit Checklist to help business owners work through their intellectual property and identify potential gaps in ownership and protection.

You can download it free from my website.

An IP audit can be particularly useful before:

• undertaking succession planning;
• bringing the next generation into the business;
• restructuring;
• admitting a new shareholder;
• selling the business;
• seeking investment; or
• updating your estate plan.

Finding an ownership problem while everyone is alive, well and cooperating is usually much easier than discovering it during a sale, dispute or estate administration.

Protect what the family has built

A successful family business can represent decades of work.

Over that time, the family isn't just accumulating physical assets and financial value. It is building a name, reputation, knowledge, systems, relationships and creative material.

Much of that value is intellectual property.

So, as part of your next succession planning conversation, add one more question to the agenda:

Who actually owns our intellectual property?

If the answer isn't immediately clear, that's a good place to start.

You can download my free IP Audit Checklist from my website to identify the intellectual property within your business and the areas that may need attention.

And if you'd like advice about IP ownership, business succession or protecting intellectual property before a restructure or generational transition, you can also book a Strategy Call.

Disclaimer: This article is intended for general educational purposes only and does not constitute legal advice. You should obtain advice tailored to your circumstances before acting on any information discussed in this article.