Intellectual Property: A Succession-Planning Minefield

We’ve covered at-length the difficulties that come with succession planning: how to navigate retirement, how to responsibly pick and support new ownership, how business families can create succession plans that feel fair and just to the entire family, and much more. But as hard as all that is, intellectual property issues can often be the real wrench that brings succession planning to a grinding halt faster than anything else.

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Intellectual property issues can be such a minefield to succession because the nature of intellectual property is often both incredibly personal and decidedly ethereal. Say your mother is retiring and passing her manufacturing business on to you. You may inherit ownership of the factory, the offices, and responsibility for the business dealings, but the company’s success was built on the competitive advantage of a new manufacturing process that your mother envisioned and patented. Does she pass on that intellectual property that she created to you as well, or does she retain it herself? If the latter, is the business now obligated to pay patent royalties to your mother? If so, may she use this power to continue to influence the business and undermine your succession plan, or is she simply using the royalty checks to help fund her retirement? Obviously this situation is hypothetical and has no “right” answer, but these are issues that arise all the time and considering them can teach us how easy it is for intellectual property disputes to mire the succession planning process if it does not already account for them.

According to Tom Hubler, intellectual property disputes often have the same root as many other family business conflicts: an unwillingness to formalize family business arrangements. While sharing the story of an uncle and nephew unable to negotiate an intellectual property disagreement, Hubler recounts:

Despite the help of their professional advisor and their own best efforts, Joe and Bruce were deadlocked. No formal agreements existed between them. Unfortunately, this is not unusual in many family businesses. As I’ve previously noted, written agreements and formal structure are commonly ignored by relatives who are in business together. In fact, formalities such as this may be viewed with mistrust. Merely bringing them up can trigger hurt feelings. (Tom Hubler, The Soul of the Family Business)

As usual, the best way to resolve these issues is by taking preventative measures to ensure they never arise in the first place. When first discussing a succession plan, make sure to bring all intellectual property ownership to the forefront, with the help of an IP attorney, if you can. Make sure that all copyrights and patents are created and accounted for and that all rights holders (and potential rights holders) have had time and space to discuss their wishes and their intentions so that everyone proceeds forward on the same page when creating a comprehensive succession plan.

Intellectual Property as a Legacy Building Tool

In the best of circumstances, though, intellectual property need not even be a dispute. It can even be an active component in building legacy upon death or retirement. Take the story of one family whose famously charismatic and popular owner suddenly passed away without an active will. The ownership of her business was passed on to her then-current husband (who worked alongside her running the business), and the intellectual property rights to an autobiography about her life and her business were placed under control of the business itself (with all copyright royalties going to the business). While the business was successful, the founder had very little in the way of savings or property to herself, and without a will, very little of value was passed on to her daughters from a previous marriage, who both had careers outside of the family business and no interest in the responsibilities of taking an ownership stake. As the husband moved towards retirement himself, he built in a clause that when he sold the business, the intellectual property rights of his wife’s autobiography would be transferred to his step-children as a way of allowing his wife’s legacy to continue within her family. While neither daughter expects to see much in the way of royalties from such a relatively niche publishing deal, they both appreciate the chance to steward their mother’s personal legacy  outside of the context of business ownership.

Intellectual property often involves the true heart of a successful business or business person. It can protect a competitive advantage, showcase ingenuity and entrepreneurial spirit, and cement a creator’s legacy. It’s only natural that such an important topic can cause division and stress amongst families, but it doesn’t need to be this way. For help creating thorough and comprehensive succession plans that include intellectual property, pick up The Soul of the Family Business by Tom Hubler. Through personal anecdotes, real-world case studies, useful tools and frameworks, and more, Hubler offers an in-depth look at how the most successful business families prepare for handling even the stickiest ownership disputes. You can pick up The Soul of the Family Business, available in hardcover form on Amazon.com, directly through Itasca Books, or at a bookstore near you. And of course, if you’re ready to take the next steps, you can always contact Hubler for Business Families today.