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Managing intellectual property in business
Australian intellectual property (IP) law is designed to encourage innovation and enable businesses that develop original IP to gain a competitive advantage. Applying for IP rights over inventions can be critical to building a business and establishing a market presence.
Most businesses have intellectual property of some type, but they do not always recognise it. IP and other intangible assets include patents, trademarks, designs, and secret processes. While certain creations of the mind are protected by copyright law when they are recorded, such as a written description of a new process, businesses may decide to keep such inventions as trade secrets, make information around them confidential, or apply for a patent, for example.
Decide how you want to protect inventions that make you stand out from others. You need to be familiar with and apply relevant IP protection, record your IP for effective management, and address IP in contracts.
This guide explains how you can manage, identify, record and value intellectual property (IP) assets you have created, paid for or have a licence to use.
Develop an intellectual property strategy
You should develop an intellectual property (IP) strategy that guides decision making about protecting your inventions.
There are different types of IP protection in Australia, each with its own legislation: copyright, patents, trademarks, registered designs, plant breeder's rights and circuit layout rights. IP strategies should also include confidential information and domain names. Each strategy provides a specific type of protection.
A number of factors influence a decision on the type of protection to use. These include:
- timing
- cost
- value
- degree of protection required.
Layering of intellectual property
It is not unusual to employ different forms of IP protection to protect different aspects of an original creation. The practice is called 'layering'.
In the case of a vehicle, multiple components are likely to be protected by some form of IP rights. For example, design rights can be used to protect the vehicle's body design (e.g. VW Beetle, grille (e.g. the Rolls Royce grille) or seats). Patents can protect components such as engines or brakes. There is copyright in production manuals, and the name of the car can be registered as a trademark. Trade secrets can also be used to protect processes behind the development and production of the vehicle.
Conduct an intellectual property audit
An intellectual property (IP) audit (also referred to as IP due diligence) is a review of the IP owned, used or acquired by an organisation. It aims to find out what IP is within an organisation, who owns it, the value of that IP, its legal status, and what to do with it.
When to conduct an IP audit
- You have new IP management or an audit is needed as part of an ongoing IP asset management program.
- There is a significant corporate change, such as a merger, acquisition or a planned public listing.
- You are considering entering a joint venture.
- There is a transfer or assignment of IP from one organisation to another.
- You have set up an IP licence or licensing program.
- There is a significant change in case or statutory law.
- A financial transaction involving IP takes place.
- You have implemented a new program or policy.
- You are enforcing or defending your IP rights.
Who should conduct an IP audit?
- An IP audit should be performed by a team consisting of at least one patent attorney with expertise in IP law, and one representative each from management, marketing, technology, and research and development.
How to conduct an IP audit
- Develop a plan for the audit that defines the area of inquiry, scope (which will vary depending on why the audit is being conducted, the size of the organisation and the significance of IP in the organisation's corporate plan) and the time schedule.
- Outline the responsibilities of each member of the audit team.
- Define the preliminary documents for review and decide which members of the organisation, present and past, to interview.
- Assess the mechanisms that the organisation uses to identify and protect each new piece of IP that the organisation develops and otherwise acquires.
- Identify all IP assets and develop an IP database/register containing information, such as
- nature/description of the asset
- how it works and how it is used
- its stage of development (e.g. proof-of-concept, prototype, trials etc.)
- the owner of the IP asset and any problems that exist with ownership
- the inventors, creators or authors
- when and how the asset was created or acquired
- contracts and agreements in place (i.e. with employees and contractors)
- the asset's IP status (e.g. pending or granted patent, trademarks etc.)
- ongoing maintenance aspects (e.g. patent fees, licence fees etc.) expiration or renewal date of the IP protection
- how it can be further exploited (e.g. by licensing)
- the value of the asset, and how it fits with the corporate business plan.
- Analyse the IP and understand how it fits with the organisation's core objectives and competencies.
- Determine what action to take for each IP asset and decide when and how to protect the IP, if this has not already been done.
- Search journals and databases to identify possible infringements of the organisation's IP rights and to ensure the organisation does not infringe anyone else's IP rights.
- Review the organisation's compliance with the terms of any IP registrations or licences of IP rights.
- Document the audit results and present them to the organisation, with recommendations, if any, about where IP protection is inappropriately thin and where protection may be reduced.
Collect IP audit information
- Written documents - gather information from documents, reports, agreements and contracts (i.e. employee and independent contractor, joint venture, licence and research and development agreements) and computer databases.
- Interviews - obtain interviews on the technical, legal, managerial and human resources aspects, and collect information on licences, research and development reports, employee and contractor confidentiality and assignment agreements, and employee invention disclosure statements.
- Surveys - written questionnaires for present and former employees and contractors (across all business units of the organisation) to acquire information on inventions, know-how, methodologies etc.
- Observation - walk through the laboratories and workspaces and talk with the employees.
- Database searches - search patent databases, public registers and court registers for patents, trademarks, designs and any infringement actions. Also search publications in journals, competitors' brochures and other marketing material etc. to be kept informed of possible developments and infringements.
Intellectual property valuation
There are different methods for valuing IP and any IP valuation will vary depending on a broad range of factors, primarily the time, context or purpose and application of the valuation.
Good market research and professional advice from a range of specialist professions can help determine a realistic valuation; however, an absolute valuation will only be determined when a purchase, transfer or transaction price has been formally agreed.
Why value your intellectual property?
There are many reasons for placing a dollar value on IP. These include the need to:
- understand the assets held by the organisation and improve decision making, particularly in relation to determining future investment or development
- determine a ‘walk-away’ position in negotiations
- secure financial investment
- establish the amount of damages to seek for infringements
- meet legal and accounting standards requirements
- meet taxation liabilities, particularly capital gains tax and stamp duty.
For valuations relating to legal and accounting requirements and taxation liabilities, IP should be considered as a legally defined and standardised asset, recorded and valued according to relevant legal and accounting standards. For general bookkeeping and accounting purposes, IP is considered an intangible asset, which has special protection through patents, trade secrets, trademarks, designs and copyright. These methods of protection establish rights that are identifiable assets and can be recorded.
Valuations relating to investment decisions and quantifying damages for infringements are more complex and generally concerned with valuing the business opportunity relating to the development of the IP. The value of the same IP will vary over its lifetime, and any specific valuation of IP will depend factors that influence the ability of the business to commercialise the opportunity arising from the IP. That is, the IP will be worth more to those who can commercialise it.
Steps to valuing intellectual property
The value of the IP is usually considered to be equal to the amount that a purchaser would pay for that asset at a market price. There are 3 fundamental steps to valuing IP:
- Determine the source of the IP.
- Determine the key benefits associated with the IP.
- Select the most appropriate approach to suit your valuation requirement:
- market-based approach (e.g comparable transactions/industry benchmarked and future-income based)
- cost approach
- elimination approach. This is based on valuing the IP as equal to the value of the business, less the tangible net assets used in the business, and the goodwill not specifically attributable to the IP.
Intellectual property and contracts
It is essential to consider the question of intellectual property (IP) ownership whenever you enter into a contract with an external party. You need to make sure that the contract addresses IP issues sufficiently to meet the needs and expectations of your business.
Issues of pre-existing IP (sometimes called 'background IP') need special attention in certain situations; for example, if contractors will be incorporating their pre-existing IP in the material they develop with you.
You need to secure all rights necessary to enable your business to carry out its activities in a lawful manner (including rights to use any pre-existing IP owned by the external party).
If you enter into a contract to develop a new software program for a customer, ensure that the agreement specifies whether your company owns the program outright (including all associated IP rights), is entitled to use the program for a specified purpose only, and/or is entitled to share the program with external parties (and if so, on what - if any - conditions).
If specific terms about IP ownership and rights are not included in a contract, the general position is that the creator of the materials under the contract remains the owner of the IP.
Government contracts
In the absence of any contractual term providing otherwise, the creator of copyright protected material will own the copyright, except where copyright material is produced by a business/company for the Queensland or Australian Government. In that case, section 176 of the Copyright Act 1968 (Cth) displaces this general rule and copyright will be owned by the relevant government contracting party.
In any government contract you enter into, make sure that the contract contains a provision that accurately sets out your understanding of the IP ownership issues.
Intellectual property and employees
Many employees create new materials and may not be aware that copyright in those materials is automatically protected and can belong to their employer.
It does not necessarily matter that they may have created the IP (wholly or in part) outside work hours, or without using company facilities or equipment. The deciding factor is whether they were performing official duties at the time of the IP's creation or whether the work is consistent with their role.
Employees should have a basic understanding of IP rights to ensure that they properly manage and control any IP they create and, where appropriate, they are recognised for their effort in creating new IP.
Where significant and potentially valuable IP is involved, it is wise for an employee to obtain their own independent specialist advice on IP ownership issues. Dealing with IP ownership in an open manner at an early stage is best, before you make significant and strategic business decisions, including financial commitments.
Employment (and consultant) contracts need to deal clearly with IP ownership issues to avoid any misunderstandings and to minimise the prospect of any legal disputes.
Intellectual property advice and support
Many professional organisations can provide advice and information on IP. It is important to understand what advice you require, and to find out who can best provide that advice.
Australian Centre for IP in Agriculture (ACIPA)
The Australian Centre for IP in Agriculture (ACIPA) provides a user-friendly PBRs fact sheet (PDF, 292KB) that explains the Plant Breeder's Rights Act to a range of different stakeholders.
Australian Copyright Council
The Australian Copyright Council is a non-profit organisation, partly funded by the Australia Council for the Arts. It supports a creative Australia through providing information and advice on copyright.
Australian IP Toolkit for Collaboration
The Australian IP Toolkit for Collaboration is specifically aimed at helping businesses and researchers set up collaborations, and includes guides, tools and model contracts.
Copyright Act 1968 (Cwlth)
The Copyright Act 1968 (Cwlth) protects rights of creators of original literary, musical and artistic works under Australian law.
Copyright Agency
The Copyright Agency is a non-profit rights management organisation for creators.
The Australian Government Department of the Attorney-General
The copyright function is with the Australian Government's Attorney-General's Department and copyright information is provided on that website.
IP Australia
IP Australia is the Australian Government agency that administers IP rights and legislation relating to: patents, trademarks, designs and plant breeder's rights. IP Australia also provides information on confidentiality and trade secrets .
Intellectual property info kit
The intellectual property info kit is a Queensland Government searchable, detailed guide to commercialising your IP and common terms used. The material in the intellectual property info kit is provided as an information source only and should not be relied upon as legal advice.
The Institute of Patent and Trademark Attorneys of Australia
The Institute of Patent and Trademark Attorneys of Australia is a representative body for Australian patent and trademark attorneys. This site provides the latest news and resource information about patent and trademark law in Australia.
The Plant Breeder's Rights Act 1994 (Cwlth)
The Plant Breeder's Rights Act 1994 (Cwlth) provides for the granting of proprietary rights to breeders of certain new varieties of plants and fungi.
The Trans-Tasman IP Attorneys Board
A directory of registered attorneys is published by the Trans-Tasman IP Attorneys Board—a group that administers the patent attorney professions in Australia and New Zealand and the trademarks profession in Australia.
© The State of Queensland 1995–2024
- Last reviewed: 08 Sep 2021
- Last updated: 08 Sep 2021