Today’s business landscape is particularly competitive, and for this reason, you’ll want to do everything you can to protect your assets. These assets, of course, include intellectual property (IP) rights. By definition, intellectual property refers to any intangible asset that a company creates — like trademarks, copyrights, and trade secrets, to name a few examples. These intangible assets are just as important to your business’s bottom line as physical assets, like equipment and technology, are.
If you want to properly safeguard your business’s intellectual property, you’re going to want to conduct due diligence. Due diligence is the process of administering a thorough investigation into a potential partnership or investment. As a business owner, you should always conduct due diligence as it’s a great way to make sure partnerships and investments are both valuable and free of risk. If you take the time to conduct due diligence, you’ll be able to identify any threats to your intellectual property and take the appropriate steps to protect it.
Let’s do a deep dive into intellectual property and due diligence and go over some common mistakes businesses make when it comes to handling intellectual property.
What is intellectual property, and why is it important for your business?
The business world is ever-evolving, so it’s no surprise that the importance of intellectual property has surged in recent years. Since the service economy and information technology have moved into the spotlight, you may have found that, as an entrepreneur, your most valuable assets are actually intangible. Intangible assets can take a lot of different forms, but intellectual property is probably the most significant intangible asset.
Intellectual property refers to any creative innovation that your company owns. By putting in the work to protect your company’s intellectual property, you’ll be able to perpetuate your competitive edge and share your intangible ideas with others while still maintaining ownership over them. This, in turn, should cause the value of your intellectual property to increase.
As a business owner, you need to be aware of the different types of assets your company has. That way, you’ll have a better idea of how to protect these assets. Physical assets — such as buildings and machinery — are much easier to protect than intangible assets (i.e., intellectual property). Your business’s intellectual property is incredibly valuable, so it’s important that you know how to properly protect it.
What types of IP are protected by the law?
One way to protect your business’s intellectual property is to go through the process of getting it legally protected. When you obtain legal protection for your intellectual property, you’re turning your company’s intangible assets into exclusive rights, which means your competitors won’t be able to benefit from your intellectual property.
Intellectual property rights give you, as a business owner, the opportunity to share your creative innovations with your competition — should you choose to do so. In this way, you can use your business’s intellectual property rights as a sort of bargaining tool and even sell them for financial gain. Let’s take a look at some of the most common types of IP that the law protects below:
Patents
A patent is a legal document that says you — the business owner — are the owner of the rights to your intellectual property for a set amount of time. The United States Patent and Trademark Office grants this type of protection, and it’s designed to encourage inventors, artists, and business owners to be innovative and creative by giving them the opportunity to reap the rewards of their intellectual efforts — without the fear of their competition stealing their IP.
Trademarks
You’ve likely seen products with the trademark (™) symbol. You should always make sure that you’re protecting your products with a trademark because, after all, you spend a lot of time and resources creating slogans and logos that represent your company and products. By trademarking this type of intellectual property, you’ll be able to make sure no one steals your ideas and claims them as their own. If you don’t bother to trademark your intellectual property, what’s stopping your competitors from running off with your idea or invention?
Copyrights
If you, as an entrepreneur, hold a copyright over your business’s intellectual property, that means that your business has the exclusive right to distribute and license said intellectual property for as long as the copyright is in effect. That said, there may be some exceptions to this rule due to the “fair use” doctrine, which means your intellectual property would be open for distribution for educational or scholarly purposes.
It’s not always necessary to file for copyright if you want to protect your IP, but if you register with the U.S. Copyright Office, they should be able to help you establish that the work in question belongs to you in court (should you ever find yourself in such a situation). This could be a great way to avoid legal disputes regarding who owns your intellectual property.
How to conduct due diligence on potential IP assets
So, how do you go about conducting due diligence on a company’s IP assets? This process is admittedly a bit complicated, but it’s a necessary way to cover all of your bases as the owner of an IP asset. Let’s take a closer look at the steps you’ll need to take below:
- Review all intellectual property
The first thing you’ll want to do is review all patents, trademarks, copyrights, and other IP assets that are currently held by the company you’re investigating. This step is ultimately going to help you identify any conflicts or infringements with your own intellectual property. You may also want to take the time to assess the strength of the company’s IP assets and determine whether or not there will be any legal disputes or challenges you’ll have to deal with.
- Familiarize yourself with the company’s policies
The next order of business is evaluating policies and procedures that the company has in place for protecting its IP assets. This will include any confidentiality agreements and training programs for employees.
- Consult with legal experts
Finally, it’s highly recommended that you work with a team of legal experts throughout this process. That way, you’ll be able to ensure that all of the necessary contracts and agreements are in place. This will help to protect your own intellectual property interests and enter into a partnership or investment with the company you’re investigating if you wish to do so.
Establishing an IP policy and registering your assets with relevant authorities
If the process of establishing an IP policy and registering your IP assets with the relevant authorities sounds a bit daunting, you’re definitely not alone in feeling that way. We’ve broken down the steps you’ll need to take below to make this process a little bit easier:
- Establish your intellectual property assets
The first thing you’ll need to do is identify and take proper inventory of your company’s IP assets (i.e., software, branding, inventions, etc.). You’ll also need to figure out which intellectual property assets are most important to your business, as that will allow you to determine what steps you need to take to protect them properly.
- Develop your IP policy
Once you’ve determined what your company’s IP assets are, you’ll be able to start developing your IP policy. Ideally, your business’s IP policy should outline the required procedures and processes for protecting your intellectual property assets. This will include registering your assets with relevant authorities and specific guidelines for how you’d like your employees to handle confidential information.
- Register your IP assets with relevant authorities
The next thing you’ll want to do is register your intellectual property assets with the relevant authorities. This step is especially important. You’re going to need to register your patents, trademarks, and copyrights with the United States Patent and Trademark Office (USPTO) and the U.S. Copyright Office, respectively.
- Audit your IP assets regularly
In order to make absolutely sure that everything is shipshape with your IP policy (i.e. your employees are following the rules and you’ve properly registered your assets with the aforementioned authorities), you’ll need to conduct regular IP audits. This could also be a great way to help you determine whether or not there are any potential risks to your intellectual property.
- Consult with legal professionals
Making sure that you’ve protected your company’s intellectual property isn’t a process you’ll want to attempt to go through on your own. We recommend working with legal professionals throughout this process, as they have expertise in this field and will be able to help you sort out any legal issues that may come up with your intellectual property assets.
Working with third parties to avoid infringement of your IP rights
As an entrepreneur, you’ve likely heard warnings about the dangers of copyright infringement, but what does copyright infringement mean? Copyright infringement happens when a third party uses or distributes copyrighted material without getting permission from the copyright owner beforehand. This would, of course, be a violation of the copyright holder’s rights. Copyright infringement is a bigger issue than most business owners realize. Thankfully, however, there are ways to avoid the infringement of your IP rights while working with third parties.
It’s highly recommended that you include clear IP protection clauses in any contracts you draw up with third-party partners or vendors. In general, these clauses should provide an outline of the specific IP rights that are being licensed and transferred. They should also go over any limitations or restrictions regarding how the third party in question can use your company’s intellectual property. Also, make sure that the third party you’re working with understands their responsibilities when it comes to protecting your company’s IP assets. Remember, you’ve got to cover all of your bases here.
You’ll also want to conduct due diligence on your third-party partners before you enter into an official business relationship with them. This will involve researching their background and seeing whether or not they have a history of IP disputes. It’s also a good idea to include confidentiality and nondisclosure agreements (NDA) in your contracts when working with third-party partners.
Common mistakes in handling intellectual property and how to avoid them
When it comes to handling intellectual property, it’s easier to make mistakes than you might think. If you’re going to effectively protect your intellectual property assets, it would benefit you to be aware of the most common mistakes business owners make regarding intellectual property. Let’s take a closer look at these mistakes below:
Assuming that your business doesn’t have any IP
This is, unfortunately, a common mistake that newer entrepreneurs make. You should never assume that your business doesn’t have any intellectual property. Every business has IP assets. You’ve got to keep in mind that this involves more than just logos and slogans. Your business’s IP assets also include the branding and product names that you’ve put time and effort into developing.
Assuming that patents are the only type of IP
Contrary to popular belief, patents are not the only type of intellectual property you’ll have to worry about protecting as a business owner. Copyrights and trademarks both play huge roles as well when it comes to protecting your business’s IP assets.
Assuming everyone will be willing to sign an NDA
Some business owners might assume that everyone involved (their own employees, third parties, etc.) will be willing to sign an NDA. This is oftentimes not the case, so you’ll want to be careful about the information you disclose to the people you’re working with — especially third-party partners.
Minimizing the importance of IP
Some start-ups don’t take the time to think about how important protecting their intellectual property is. This can, unfortunately, be a costly mistake. If you’re the owner of a start-up, your smartest move is to protect your IP from the beginning. This way, you’ll be able to make secure investment deals and protect your assets over the long term.
Due diligence and intellectual property: The bottom line
When it comes to protecting your business’s intellectual property assets, you absolutely must conduct due diligence. This can be a rigorous process, but it’s well worth it! If you’ve decided that conducting due diligence is the right move for your company, check out additional Project Newport articles about running a business.