Maximising asset protection through an IP holding company
An IP holding company is a non-trading entity that holds the intellectual property rights used by the operating company of a business. The key benefit of holding IP assets in this way is to protect those assets from being sold to pay the debts and liabilities of the operating company if it is liquidated.
While incorporating an IP holding company with ASIC is a relatively straightforward exercise, we’re often seeing this structure not being used to its full potential.
These are steps that every business with an IP holding company should take to ensure that this structure provides the maximum level of IP asset protection.
Register IP assets with the IP holding company as owner
Business IP assets which can be registered, such as trade marks, designs and patents, should be registered with the IP holding company as owner. This may sound straightforward, but not always.
Often, businesses will list the IP holding company as the owner of the registrable IP without considering if that company has the legal rights to claim ownership. The legal owner of IP under Australian law isn’t simply determined by who is listed as the owner in the application to register that IP.
Taking trade marks as an example, the legal owner of a trade mark in Australia is the “first user” of the mark in connection with offering specific goods and services within Australia, or where there has been no prior use, the first to file an application for the trade mark with IP Australia. The correct legal owner of the trade mark must be identified at the time of filing the application. Listing the incorrect legal owner can mean that any resulting trade mark rights granted by IP Australia are invalid.
If a business is already using the trade mark it is seeking to register, the “first user” is typically the operating company, because the IP holding company is not itself trading and using the trade mark. In this situation, the operating company would generally need to be listed as the owner of the trade mark to avoid potential validity issues arising. The ownership of the trade mark can then be transferred to the IP holding company after filing.
Similar considerations apply to registration of design rights in Australia. For an IP holding company to be entitled to file a design application in its name, it needs the rights to do so from the designer, or the entity that has acquired the legal entitlement to file from the designer. For example, the designer might be an employee of the operating company, and the filing rights held by that company due to the terms of the designer’s employment agreement. The IP holding company will need to acquire the legal filing rights from the operating company before submitting the design application.
Ensure all business IP is held by the holding company
Registered IP rights do not encompass all the valuable IP a business might create.
Copyright protection in Australia arises automatically as soon as a copyright-eligible work is captured in a tangible form, such as through being written, typed, or drawn. Since copyright covers a wide range of creative works (eg. photos, website content, videos, manuals, software code), businesses typically generate new copyright through their day-to-day operations. This IP can be extremely valuable to a business, yet is often overlooked as an asset to be transferred to the IP holding company because it doesn’t require registration.
To ensure that business copyright enjoys the same level of asset protection as registrable IP rights, agreements between the operating company and the IP holding company transferring the relevant copyright should be implemented. The agreement can cater for future copyright as well, being automatically transferred to the IP holding company upon acquisition of those rights by the operating company.
Implement intercompany licensing agreements
An intercompany licensing agreement will enable the IP holding company to retain ownership and control of the business IP, while granting legal usage rights to other entities within the corporate group.
These agreements are also important for demonstrating that the IP holding company is actively using the IP it holds by licensing its use within the corporate group. This is especially critical for maintaining registered trade mark rights, as in many jurisdictions, trade mark registrations can be cancelled for non-use if the registered owner does not use the mark within a specified period prior to being challenged (typically three consecutive years).
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Contact us to discuss how we can help with setting up your IP holding company to best protect your valuable IP assets from trading risks.