479-439-6605 [email protected]

Selling A Business: Are Your IP Assets Sale-Ready?

If you’ve never found yourself immersed in a dynamic and engaging discussion about intellectual property, then you clearly haven’t met Angela Grayson. Angela is an IP attorney who used to work in-house for Fortune 500 companies like Eli Lilly, Pfizer and Walmart. Eventually Angela’s inner entrepreneur got the best of her, and in 2015 she founded Precipice IP — a strategic IP consulting and law firm that helps businesses maximize opportunities, manage risk, and extract value.

During a recent meeting I asked Angela how owners should think of intellectual property in the context of selling a business. Here is our follow-up Email exchange:

BT: When I ask business owners if they have any intellectual property at their business, they often say “no.” What are the main forms of IP that most businesses have, whether they realize it or not?

AG: Intellectual property comes in a variety of flavors. Patents, trade secrets, trademarks, and copyrights. Not every business will have patented or patentable innovations, but nearly every business will have trade secrets, trademarks, and copyrights.  

BT: How should these basic forms of IP be protected?

AG: Each form of IP should be protected and preserved in different ways.

Patent rights are rights granted by the federal government through the US Patent and Trademark Office (USPTO) after an application is made. This process usually takes several years. Patents can be used to protect not only original designs and products, but also business methods, processes and systems.

Examples of trade secrets include marketing strategies, pricing strategies, supply chain, know-how, etc. These are all examples of information that needs to remain secret in order to give a business a competitive advantage. The key to maintaining the ability to enforce trade secret rights is all-around efforts to keep the “secret sauce” secret.  Businesses should consider such measures as confidentiality agreements, security and security badges for offices, the separation of highly confidential information to people who need to know, etc. Laws have passed as recently as last year providing businesses more tools to enforce these rights.

Examples of trademarks include the brands companies use to identify and distinguish their products or services in the marketplace. Think of the golden arches for McDonald’s or the yellow burst for Walmart. Colors, names, symbols; all of these elements work to establish goodwill in the minds of the consumer, and consequently, establish value for the brand owner. Trademarks can exist as registered (with state or federal governments) or unregistered common law rights (through use).

Finally, examples of copyrightable material encompass virtually any original creative. Copyrights protect original works of authorship when set in a tangible form, and can include videos, brochures, logos, artwork, jingles. The threshold for creating copyrightable content is pretty low, but when businesses take the steps to register those works with the US Copyright Office, the resultant registrations may provide a tremendous value-add to a business.

BT: Are there certain types of businesses that need to devote extra resources to IP protection?

AG: Maybe not extra, but certainly customized. A business will want to protect its intellectual property depending on how its products/services make it to market. Whether the products are made in-house or outsourced; whether made in the US or offshore; whether licensed-in or licensed-out, etc. The specifics of how a company makes money will inform the intellectual property strategy necessary to capture the ‘intangible’ business value that drives the business.

BT: What are the biggest mistakes you see business owners make regarding their IP?

AG: Big mistakes can be summed up into two categories: ownership and control. Most mistakes outside of this don’t really matter that much in the big scheme of things. If a business owner has not taken the appropriate steps to make certain it owns and controls the IP vis-a-vis an employee, contractor, competitor, vendor, or customer then it runs the risk that significant value has not been captured by company.

BT: If there’s one thing about IP that you’d like business owners to keep in mind, what would it be?

AG: Get it right from the start; if not, then fix it before you need to. Openly repairing intellectual property issues (if one can) after a deal is on the table can work to devalue the property, in much the same way a home buyer lowers her offer to a seller after discovering property damage through the home inspection process. Consult an IP attorney if patents, trade secrets, copyrights, or trademarks are anywhere near the deal. IP laws are archaic at best, and only through working with someone who has extensive experience in these areas can the unwary avoid the land mines that can blow up deals.

As a proactive approach, I recommend routine IP audits. In advance of a sale or transfer, IP due diligence is a best practice.

Be sure to check out Angela’s series on The Business Value of Intellectual Property.

Are you building a sale-ready business? Contact Allan Taylor & Co. to learn more about how we can help.

Author: Barbara Taylor

Barbara is co-founder of Allan Taylor & Co. and a former New York Times blogger. She has been a small-business owner since 2003. Barbara lives with her husband, Chris, and their two sons in Northwest Arkansas.

Connect with Barbara Taylor:

Before you leave...

Don't miss out on our latest tips and resources for planning a sale, selling your business and business valuation -- delivered straight to your inbox.

Call Now Button