ELITE ADVISOR BEST PRACTICES
Intellectual Property and Succession Planning
Return on Your Investment: Securing Family and Business Assets
By Tom Hubler
- Many IP ownership issues can be minimized by setting clear ground rules or expectations right when the business begins.
- When IP is involved, family-owned business clients should understand and record their plans for future ownership, licensing and/or sale of patents.
- Regular family meetings will help to uncover and resolve emotional issues that can strain even the closest of families and their business.
Many conflicts can erode family relationships in a family-owned business—succession, ownership, estate management, leadership, retirement, perceived fairness and more. But one of the most unique and damaging can be the disagreement over intellectual property. The title of this article—“Intellectual Property and Succession Planning”—describes what would seem to be a straightforward process. But those two word pairs can hide a maze of misunderstanding, confusion and heartache.
Intellectual property can mark a point at which the family, the business, entrepreneurialism, patents and copyrights may overlap so much that no one clearly recognizes boundaries, sensitivities or direction. Past and future collide in a fight for the fuzzy present. I have seen it create havoc in personal relationships, tear apart family bonds and destroy business possibilities. It can devastate a loving family and its thriving business.
Take a moment to read this true story. The names and situations were changed to protect the family.
Real-life case study
When I became involved as a family business consultant, an uncle (Joe) and his nephew (Bruce) were in the middle of a dreadful succession planning ordeal. The typical business-family issues of ownership, estate and leadership were compounded by a painful history and intellectual property concerns.
The painful history began 30 years earlier when Bruce was 10 years old. Both of Bruce’s parents (Joe’s brother and sister-in-law) were killed in an airplane crash. At the time of the tragedy, Joe had left the family’s construction business and started one of his own, eventually bringing in his two sons, Bruce’s cousins. (I know this is complicated, feel free to read that sentence again!).
With both parents deceased, Uncle Joe invited 10-year-old Bruce into his family. Everyone did their best to make Bruce feel welcome and part of the family, as all three boys were about the same age.
Joe’s two sons attended college and returned to join their father’s business. Bruce also graduated from college and went his own way, working at various marketing positions and exploring his interests. After several years he moved back to his hometown.
During that time, tensions rose between Joe and his two biological sons over their construction company. Their working relationship had deteriorated over differences about workload, roles, responsibilities and decision-making.
Uncle Joe, an engineer, had also created an invention. He had consulted an attorney and obtained patent protection for his idea. He could see the potential source of revenue and did his best to protect his patent and revenue stream, but had done very little else with his idea. It was essentially only potential, although Joe had ideas and future plans for this separate company.
Tensions grew within Joe’s construction company. His two talented sons finally said either he would leave the family business or they would. Reluctantly, Uncle Joe left. He was phased out of his own construction business.
Having come back home, Bruce became interested in his Uncle Joe’s patented invention and began collaborating with him on it. Bruce conducted marketing surveys, attended trade shows and determined that there was an opportunity for a viable business selling the invention. Initially, Bruce and Uncle Joe got along well, but as this separate business grew, Bruce wanted more control. Bruce pressured his uncle for a succession plan that would give him future controlling interest in the company and, in the meantime, allow him to continue to make major leadership decisions.
Uncle Joe was in his early 70s but balked at creating a succession plan. He was not ready to retire. Bruce realized that if he grew the company, it would be more expensive for him to buy it. Plus, Uncle Joe owned the patent that was the basis of the company’s success. This was the state of the dreadful succession planning ordeal that I was brought in to fix.
Getting succession planning back on track
I talked with Joe and his nephew, Bruce. I interviewed family members who were engaged in but not part of their construction business. I came to recognize that neither Uncle Joe nor Bruce were good communicators. Each could not respect the other’s perspective. Uncle Joe did not understand Bruce’s concern about the expense of buying the company and controlling his own destiny. Bruce could not appreciate Uncle Joe’s need for security, protection of the patent and feeling relevant in the company.
Despite the help of their professional advisor and their own best efforts, Uncle Joe and Bruce were deadlocked. No formal agreements existed between them. Unfortunately, this is not unusual in many family businesses. Written agreements and a formal structure are commonly ignored by relatives who are in business together “because we love each other.” In fact, formalities such as this may be viewed with mistrust. Merely bringing them up can trigger hurt feelings.
Unresolved emotional issues added to the complexity between Uncle Joe and his nephew, Bruce, as they tried to resolve patent and succession issues. Bruce had never expressed his own hurt feelings over how his parents’ property and family heirlooms were dispersed at the time of their death; he was 10 and Uncle Joe and his family never consulted him about their “family treasures.”
Uncle Joe, on the other hand, felt unappreciated for taking Bruce into his family. The hurts were deep and unspoken on both sides.
To begin the healing, I suggested an intervention I call a Family Forgiveness Ritual©. The entire family participated, including Uncle Joe and his wife, his adult children and their spouses, and Bruce and his spouse. The emotional relief for the family was spectacular. The entire family joined together to create a new beginning. The Family Forgiveness Ritual© opened the emotional door and established an openness and positive foundation for productive business discussions.
Working together with love and respect for each other, the family resolved their business issues—regarding ownership, leadership and the patent. But it took time and many meetings. Uncle Joe eventually sold his share of the business to Bruce. Uncle Joe retains patent ownership until his death, and then the patent transfers to Bruce.
The family learned the hard lessons:
- Many, if not most, technical issues can be minimized by setting clear ground rules or expectations when the business is begun.
- Understand and record the plan for future ownership or potential licensing and/or future sale of a patent.
- Conduct regular family meetings to uncover, discuss and relieve emotional issues that can provoke the best of families and their business.
In these areas and more, professional advisors can offer guidance and leadership to help a business family avoid the maze of intellectual property that is often emotionally charged as well as technically complex.
Intellectual property law firms and professional services can help you:
- Determine the patentability of an invention
- Prepare, file and prosecute patent applications in the U.S. and internationally
- Investigate, defend and prosecute claims of infringement
- Enforce patent rights through litigation or alternative dispute resolution (ADR)
- License, police and manage patent portfolios
- Oversee the acquisition and sale of patented technology