By John Farmer -
Imagine this: A guy walks into the office of a commercial real estate broker and says he wants to buy and develop a piece of commercial real estate as his new business venture.
"Fine," says the broker. "What kind of real estate did you have in mind? Office building? Strip shopping center?"
"Office building," replies the customer. "I'm all set up. I've got my office leased and set up, computer system ready, staff hired, letterhead printed, architects retained and coffee brewing. I'm ready to roll."
The broker replies "OK, how much were you looking to invest?"
"I've only got about $500," says the customer. "I've spent nearly all of my budget on setup and salaries, and have a small amount left over for the property acquisition."
"You're kidding, right?" the broker spits out. "You've got bank financing or something else lined up, right?"
"Nope" says the customer with a straight face. "C'mon, I'm a small business with a small budget. This is all I have to put into this deal. Work with me."
Well, as obviously wrong and even comical as that customer sounds, I hear that sort of plea all of the time when the conversation is over intellectual property ("IP" in legal jargon) instead of real property.
People usually think logically and with realistic budget expectations when it comes to holding tangible property - land, buildings and machinery. Yet, even many business-savvy people can't seem to think straight about IP, even in today's cyber-everything world.
Many people want to build a business that will have IP as a core asset or as its feature product but, nonetheless, are unwilling to invest significantly in the legal work necessary to identify, form and protect that property. Instead, they expect to spend only spare change from their business ventures on IP issues.
For example, on several occasions, I have been approached by businesses that have invested thousands of man-hours and hundreds of thousands of dollars in developing an internal-use software application. In each case, the entrepreneur saw that the software had potential as a product that could be licensed for a fee to other businesses and was contemplating commercializing it.
Well, you own software by owning the IP rights to it - the copyright to the code, perhaps a patent on some inventive aspect of it, perhaps a trademark in its name if the name is distinctive, and perhaps trade-secret rights in parts of the code the customers won't see.
Still, despite the huge financial investment these businesses had made in building their systems, each balked at prospectively spending a low five-figure sum to wrap up the IP rights to it. Yet, when each company goes to sell licenses to use its software product, what it will be selling is the right to use its IP.
The problem often arises because the entrepreneur didn't realize from the start that he was getting into the IP business. Yet, if you intend to make money off of something by excluding others from knocking off your product and selling it in competition with you, you must recognize that IP is a core asset of your new business and plan accordingly.
The IP could be a copyright to something original you have created - a piece of software, a book, or a song. It could be the name of a new business or product - a name that's distinctive and into which you plan on building goodwill. It could be an invention - a new device or manufacturing process. It could be a secret formula for making a new product - a soft drink.
If you are headed down that path, don't wait until after you have nearly finished building the product to find out what it's going to cost to wrap IP protection around it. Such legal work may be one of your larger expenditures, so you need to budget for it and to adequately capitalize your business to support that cost.
To discover the likely magnitude of such cost, you'll have to spend some time and money mapping the IP aspects of your business. You should sit down with an IP attorney and explain your venture. That person can produce an IP protection plan - a cataloging of what needs to be done to form, protect and maintain your new IP and what it likely will cost to do so. While the planning itself will incur legal fees, it's a critical step. The estimate of the cost of the work to be done should be a cornerstone element of your pro forma budget.
In order to profit from commercializing real property, you must raise and earmark sufficient capital for acquisition costs, upkeep and security. Perhaps over time, folks will learn that the same rules apply to IP.
John Farmer is a lawyer with the Leading-Edge Law Group PLC, which specializes in intellectual property and e-commerce law. He can be reached at (804) 343-3221 or at jfarmer@leadingedgelaw.com
Copyright 2004 Leading-Edge Law Group, PLC. All rights reserved
Source: Times Dispatch
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