Companies within a corporate group commonly engage in intellectual property planning for a variety of reasons including wealth management and tax structuring. If you are wondering what is involved, or what you need to consider when planning, this article provides a brief overview for corporate groups.
What is a Corporate Group?
A corporate group is a collection of parent and subsidiary corporate entities that function as a single economic unit through a common source of control. Corporate groups can come about as a result of consolidation, namely the merger and acquisition of corporations. This is usually a piecemeal exercise and arises as a result of expansionist desires and opportunity. Alternatively, corporate groups can be set up from the outset as a means of quarantining, controlling and distributing risks and assets. In this regard, the exercise is more intentional.
Corporations as Separate Legal Entities
The law views corporations as separate legal entities. It means that they are capable of owning assets and incurring liabilities, just like people. Companies may own assets in the form of real estate, plant, tools and equipment to name a few. For most (if not all) companies, a valuable commercial asset is their intellectual property.
Intellectual Property as a Valuable Commercial Asset
Intellectual property can properly be described as the creation of minds and can include, but is not limited to, all present and future intellectual and industrial rights that subsist in:
- Trade secrets
- Trading names
- Trade marks
- Circuit layouts
- Internet domains; and
- Confidential information
In recognition of the fact that intellectual property may constitute a valuable commercial asset, it is important that a corporate group structures the ownership in a way that ensures the benefits follow to the most appropriate entity or entities within the group.
Assignment and Licensing of Intellectual Property
Corporate groups can achieve the transfer and use of intellectual property through assignment or licensing. An assignment affects a permanent transfer of the intellectual property from the original owner to a third party purchaser. In essence, it constitutes a sale. Upon an effective sale, the original owner relinquishes all control over the title of the intellectual property.
On the other hand, a licence acts as a mere authorisation to use the intellectual property for specified purposes. In this regard, it does not constitute a permanent disposition of the intellectual property.
An assignment of intellectual property is achieved by way of an assignment agreement. In such a case it is important to ensure that all desired aspects of the intellectual property are transferred and that the transferor has a right to do the same.
Similarly, a licensing of intellectual property is achieved by way of a licensing agreement. In such circumstances, it is important to set the parameters of use and the royalty payment mechanism.
Some Key Considerations When Intellectual Property Planning
In effecting an assignment or licence of intellectual property, the corporate entities need to consider the following.
Who is the Rightful Owner?
When assigning intellectual property, ensure that the transferor is, in fact, the rightful owner of the intellectual property. The lines of ownership can become muddied when dealing with corporate groups and at times, it can be difficult to determine the rightful owner. Needless to say, a company cannot seek to sell and profit from something that it does not own.
When licensing your intellectual property, ensure that the licensor is the intellectual property owner, and has not granted an exclusive right of use to a third party. If the licensor is themselves a mere licensee of the intellectual property, ensure that they have a right to sublicense the use of the intellectual property.
What is Being Assigned or Licensed?
Defining the ambit or scope of the assignment or licence is important. Intellectual property is often multifaceted. The description under the assignment or licence must be broad enough to capture all aspects of the relevant intellectual property. It should also be succinct enough to guard against an unwanted assignment or licence of other intellectual property that the grantor owns.
If you have any questions about intellectual property planning within a corporate group, or if you require assistance drafting an assignment agreement or a license agreement, get in touch with our IP lawyers on 1300 544 755.