By Lisa Liu, senior partner at The Mitzel Group, startup founder, corporate attorney, board director, venture capitalist.
Intellectual property protections add value to all types of companies. While securing trademarks and other types of IP protection (e.g., patents, service marks, copyrights and trade secret agreements) is a common tactic for widget manufacturers and tech companies, professional services often overlook opportunities to build value with a thoughtful IP portfolio strategy. In fact, if you ever hope to sell your business or solicit financing, creating value around your intangible assets should be a core goal. Especially for service-based businesses where the entity’s brand rests on the reputation of the core practitioners—founders and partners—developing a strategy to position the company as something larger than one (or a few) individual’s personal reputation can increase business value.
Preparing An Exit Strategy
Traditionally, service-based businesses—professional services, lawyers, architects, consultants, medical professionals and others—are often named after their owners and partners. Think “The Law Office of John Smith” or “John Smith, Chiropractor.” These business owners may spend decades building up their clientele and developing a reputation that encourages widespread referrals from their highly satisfied clients. After a long and fruitful career, the professional decides it’s time to retire. Rather than just taking down their shingle and slipping off into the sunset, what if the person decides to sell their practice? This can be done through careful succession planning. They bring on an associate or junior partner who builds their practice under the original partner’s watchful eye, slowly taking over the responsibilities and client relationships of the founder.
That model still works. But what if there is no junior partner already on the sidelines? A client list is certainly a nice asset that a buyer might want to purchase. But a list of clients is no guarantee that the trust associated with the prior owner’s personal brand will carry over to the new owner. This is when having a well-managed IP portfolio can bring additional value to the business—and a higher price to the business seller.
An IP-Rich Business
Without a brand that transcends the business owner’s name, businesses leave potential value on the table. For example, a consultant’s company could be their name followed by their area of expertise or, better for longevity, it could be a trademarked name that easily can be identified in the market and bridge across multiple future owners. If the business has a good reputation, that goodwill can carry over to the future business owner. Beyond business entity names, though, there are many processes, products and services that can also be branded and protected through intellectual property law. In this way, the business builds a portfolio of intellectual property assets, creating additional value.
Examples of these brandable assets are limited only by the imagination. A physical therapist might trademark the name of a detailed program for rehabilitating injuries or a nutritionist might trademark and copyright content within a series of classes offered to clients via on-demand video downloads. An estate planner might set up an app checklist for client intake or an event planner might brand a set of specialized wedding packages. By protecting the IP of these processes, relationships and service lines, you develop an IP portfolio that includes trusted and repeatable experiences for clients that become a real asset for future owners.
Principles Of Trademark Protection
Trademark law is generally designed as a consumer protection law aimed at making sure consumers are buying what they mean to buy and are not confused by products and services with similar names. Laws governing trademarks help to guard against counterfeiting and fraud. Similarly, service marks identify the source of services, in the same way.
One common misconception is that the holder of a trademark owns that word or mark across all uses and categories. Actually, the rights to use a name are connected with a particular category of goods or services (industry) and within the same geographical market. You might have seen the recent trademark dispute between MetaX LLC and the newly rebranded Meta Platforms, Inc. (the parent company of Facebook, which was also formerly known as Facebook). MetaX, which has existed since 2010, is a company that creates immersive virtual-reality experiences, and they claim that the goods and services of the two companies overlap. Arguably, if there were a plumbing company also named Meta, there might not be any conflict with both companies using the name. And keep in mind that the concept of geography is increasingly “gray,” since most businesses have an internet presence that is accessible from anywhere in the world.
By registering your mark, you put the world on notice that you own the mark and will be better able to protect your rights should another company claim they also hold rights to the same mark.
Stronger Brands Means More Value
A strong brand needs to be recognized in a positive way in the marketplace to have true value, so don’t think that just applying for a trademark will create value for its own sake. The business will need to be able to consistently deliver on the promise behind the brand. A business valuation consultant may be able to help you pinpoint the value of a specific brand in the marketplace. You’ll need to prove consistent, ongoing use of the mark for it not to be considered abandoned.
Before investing in any design or marketing campaign using your desired mark, conduct a thorough trademark search and work with competent legal counsel to preserve your right to use the mark through the United States Patent and Trademark Office (USPTO), as well as in any other jurisdictions where you plan to do business.
From trademarks to trade secrets—however you choose to combine IP strategies—think creatively about the packaging and promotion of your service-based business. By implementing a strategy that transcends a founder’s personal brand, you can grow your current business and increase its value as part of an ultimate exit strategy.