How do smaller firms value and defend the intellectual property they have built up over many years? Whether splitting a company up or trying to defend a lawsuit, New Zealanders’ desire to keep costs down and do-it-yourself instincts come to the fore.
When the partners in Auckland software development firm Artisan Software decided to go their separate ways, they were lucky: the split was amicable and they managed to equitably portion off the intellectual property along with the different strengths of the business.
Chris Chamberlain and fellow director Chris Craig did what many small companies do in the situation: deciding it would have proved too costly to go to outside professionals for advice, they valued the company’s intellectual property themselves.
“Where we could agree it among ourselves, we didn’t see any point in bringing anyone else in,” says Chamberlain.
Artisan has developed several products including a content management system once used at TVNZ, Fat Controller, and Synchromesh, middleware developed for an advertisement-booking system. The pair took into account the on-paper development cost of existing products and the fact that some software was unsaleable without more investment. They took some legal advice on employment issues and the like, after deciding that Chamberlain and his partner would focus on software development and support while Craig would focus on networking and some development. Auckland-based Craig was paid a “nominal figure” for Synchromesh, as it is likely to make money in the future, offset by a diminishing royalty arrangement, says Chamberlain. His new company, Artisan Software Group, shares office space in Dunedin with other developers and uses outside contractors for some work.
TVNZ owned the intellectual property of the “deceased” Fat Controller, but there might have been a royalty deal done if there was a subsequent business opportunity for the product, says Chamberlain. He would do it differently today, he says, clarifying such issues as who owns customised parts and who owns core parts in the development contract. Clients usually benefit if you can sell it to other clients, he says, as more dollars are likely to be spent on it.
North Shore developer Advanced Management Systems, meanwhile, turned to the New Zealand Computer Society to get an idea of what proportion of the IP it was likely to own of the Leader payroll system it wrote for the Devonport naval dockyard 12 years ago.
AMS and the Ministry of Defence ended up in court after the Defence Force, which covers the dockyard, sold Leader for $10,000 to payroll services bureau NZ Payroll.
AMS alleged that while the Defence Force owned copyright in the original system in 1989, its ownership in the system as updated by AMS amounted to only 15% of the total. Key was the fact that the two parties had an agreement giving AMS the exclusive right to on-sell Leader. AMS also paid for ongoing development of the package to ensure its marketability. The company was eventually awarded costs of $175,000.
AMS head Noel Reid notes that correspondence between AMS and the department came into play, suggesting good record-keeping will pay off, especially over a length of time and the change of key personnel. The expert advice from NZCS, the provider of which Reid wasn’t keen to identify, was eventually accepted by the court.
There is no one answer to IP, Chamberlain says. It makes people’s eyes light up but there are a lot of “black holes” and money needing to be spent, he says, and not only on development. Be reasonable and practical and keep it simple, he advises. While there are few quick returns, he says, investment in IP will pay off, even if it needs a fair bit of money up front.