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Intellectual Property and Business Rescue

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What questions relating to IP are to be asked when a company goes into business rescue?

10 January 2017

IP can fulfil different leves of importance to a company depending on whether the company is operating in an IP intensive environment or a less intensive environment. In this article a few aspects relating to IP and business rescue will be considered.

IP is typically viewed in terms of registered IP and unregistered IP. The former includes patents, trade marks, registered designs and plant breeders’ rights. The latter includes copyright, trade secrets and know-how.

Whether registered or unregistered, IP typically serves to offer a company some form of exclusivity or monopoly. IP thus acts as an asset of the company. Depending on the strength of the IP the monopoly could be significant. Patents offer the potential to provide market exclusivity for a certain product or process, for example, a certain type of automatic pool cleaner or a type of coffee capsule. Trade marks protect a brand, which may include a name or logo, from being used or imitated by others. Well known examples abound and include “Nandos” and “Castle”. Registered designs protect the shape of articles, for example, a new door stop, chair or kettle, and prevent direct imitation of products. Plant breeders’ rights provide exclusivity relating to specific plant varieties. These can be key in securing market dominance. For example, a grape variety that allows fruit to be harvested two weeks before other varieties permits the grower to charge a higher price and potentially saturate the market.

Trade marks deserve a special mention in their ability to span both registered and unregistered IP. It is not required to register a trade mark for it to be enforceable, however, it is much more straightforward and cost-effective to enforce a registered trade mark than it is to enforce an unregistered trade mark. Fortunately trade marks can be registered at any time in their life and, wherever possible, trade marks should be registered.

It should be apparent then that IP can be a valuable business tool which can provide a company with an exclusive niche in a market.

When a company goes into business rescue it is too late to want to put in place mechanisms to protect the company’s IP. The company will either have its IP properly protected or will not. For patents, registered designs protection must be applied for before commercial use of the product, so it is far too late at the business rescue stage to be looking at these forms of protection. Also, the cost of protecting IP during business rescue is probably not warranted.

Going into business rescue, the Business Rescue Practitioner (the CEO) will naturally take stock of all the company’s assets and these include its IP. The following questions should be asked regarding IP:

  • What IP does the company have?
    • Is there any registered IP (patents, trade marks, designs, plant breeders’ rights)?
    • Is there any unregistered IP (copyright, trade secrets, know-how)?
  • Does the IP give the company exclusivity in the market place?
  • What is the value of the IP, or, put differently, can the IP be sold if the company ultimately fails?

Insofar as patents can give a company exclusivity in respect of the products it manufactures, or at least some of the products, these will be an important consideration to the appointed CEO. The same applies to registered design and plant breeders’ rights. An analysis may be required as to the exact scope of protection offered, whether this is being fully exploited and whether any competitors are intruding on the monopoly provided.

Another very important enquiry relates to the trade marks used by the company. A comprehensive list should be compiled of all the trade marks used by the company to identify its goods or services. For each trade mark on the list the question should be asked whether it has acquired a reputation and is well-known in the business environment in which the company operates. If the trade marks are registered it will be a positive aspect and something that carries weight in putting in place a meaningful rescue plan.

It must also be remembered that registered IP is territorial. Rights are only available in countries in which they have been actively registered. Consideration must be given to the countries in which IP has been registered and this matched against the countries in which the company does business.

The corollary to all this is that the CEO should also consider whether there is any IP that is not of any value to the company and which can either be discarded or sold off. It can be expensive to maintain registered IP, particularly in foreign jurisdictions, and unnecessary expenses can be cut by culling unproductive IP, or possibly income generated by selling off or licensing out IP which is not core to the business.

The role and importance IP plays in the business rescue plan will depend on the type of business and the industry in which the business operates. What is certain is that going into business rescue will not be the time to think about IP for the first time. Also, as a general rule , a company with an appropriate IP policy in place to provide protection for its IP will invariably have a better chance at successfully navigating the business rescue process than one without IP or an IP policy.

View more information on patentstrade marks, licensing and more on our website and please contact us if you have any questions.

By Bastiaan Koster, Patent Attorney and Trademark Specialist

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