When purchasing a business, one of the most critical aspects to consider is the transfer of intellectual property (IP). IP is often the backbone of a business’s brand goodwill and, therefore, represents a significant amount of its value. Understanding IP and effectively managing the transfer of IP assets, such as business names, trade marks, copyrights, patents, and digital assets like social media accounts and domain names, may be critical when purchasing a business.
Contracts for the sale and purchase of businesses often do not address the necessary steps to transfer IP.
Transferring a business name
The name of a business is one of the most important assets of the business, representing its brand and reputation and a name that the public knows it by. The business name may be the name of a company that carries on the business or a registered business name (if the name of the business is not the name of the entity that carries it on, the name should be registered).
The process of transferring a business name registered in the Australian Securities and Investment Commission (ASIC) is not just a matter of the vendor signing a form of transfer of the name to the purchaser, as is sometimes thought. This is what ASIC says about the transfer of a business name:
How to transfer a business name
If you’re the current owner of a business name and you need to transfer it to a new owner, complete the following steps:
Steps to transfer a business name:
- Go to ASIC Connect and log in to your account. If you don't have an account you'll need to create one.
- Link your business name to your account with your ASIC key if you haven’t already.
- Select the Lodgements & Notifications tab at the top of the ASIC Connect page. Check your business email address. If this is incorrect or an email address has not been provided, you can update your business name address details.
- Select the business name you’re transferring. https://business.gov.au/online-and-digital/social-media-for-business
- In the transaction column, select Cancel/Transfer business name and select Go.
- Select that ‘I would like to transfer the business name’ and select Next.
- Review your transaction.
- Complete your declarations.
- Confirmation.
You’ll then receive a transfer number via email within 24 hours. The transfer number is 13 characters long and in the format of number 1, hyphen and 11 digits, e.g.1-12345678910.
You must give the transfer number to the new business name owner. They’ll need this to register the business name in their name.
Once the request to transfer is submitted, we will cancel your registration within 28 days.
In some cases, the sale agreement may require the seller to change its company name after the sale. For instance, if the business being acquired trades under the name “Adelaide IP Lawyers” and the vendor’s company is “Adelaide IP Lawyers Pty Ltd”, the purchaser may want the vendor to change its name to prevent confusion and permit the purchaser to register a business name, or a company with the same name, to protect the goodwill it has purchased as part of the transfer.
The steps required for the ‘name swap’ of the company are the choice of a new name for the vendor company not resembling its current name, a special resolution of shareholder(s) to change the name and the lodgement of a Form 205 with ASIC. The purchaser may then register a company, change the name of an existing company to the old name, or register a business name.
Trade marks
Trade marks, registered and unregistered, are core IP assets of a business that can include words, phrases, logos, and images that distinguish the business and its products to the public. They help build brand recognition and are often associated with the goodwill of the business. When acquiring a business, ensuring that all relevant trademarks are transferred correctly to the purchaser is critical.
IP Australia should be notified of the transfer of registered trade marks. This can be achieved by both parties agreeing to the transfer, which is submitted to IP Australia. Trade marks can also be transferred via a deed of assignment. If a trade mark is transferred by a deed of assignment, this should be produced to IP Australia. The deed of assignment should not refer specifically to the Sale Agreement, as this would then also have to be produced to IP Australia, which the parties would not normally wish to do, and consideration for the assignment can be expressed by words such as “for valuable consideration had and received”.
If trade marks consist of logos or include logos, these will be artistic works in which copyright subsists. An assignment of the copyright should be obtained by the purchaser (see below in relation to copyright). Ownership of copyright in a logo or device that is a trade mark or is included in a trade mark can be important as it may provide an additional right of action if there is an unauthorised use of the logo or trademark.
Copyright
Copyright protects original works of authorship, such as literary, artistic and musical works. It is prudent to verify that the business you are purchasing holds the copyright to any creative works associated with its business and brands. This includes marketing materials, websites, software and other media that are integral to the business. Copyright can also include documents such as instructional videos or memos that were created by the seller when they operated the business. Copyright arises automatically and does not require registration with IP Australia or elsewhere.
A transfer or assignment of copyright must be in writing and signed by or on behalf of the copyright owner. This assignment should be clearly documented in the sale agreement or in an ancillary deed of assignment to ensure that the copyright in all relevant works is effectively assigned to the purchaser, and warranties should be included in the Sale Agreement as to ownership of the copyright.
It may be that a vendor is not the owner of copyright in relevant works but holds licences for the use and reproduction of works. The nature of these licenses should be ascertained, and the licences, or agreements for licence, should be assigned or novated for the benefit of the purchaser.
Patents
Patents protect new inventions and grant the patent holder exclusive rights to exploit the invention for a certain period. Patents can be crucial to a business, especially if the business relies on unique technologies or processes that provide a competitive advantage in the marketplace.
Transfer, or assignment, of a patent in Australia must be in writing and signed on behalf of the assignor (vendors) and the assignee (purchaser). The assignment is often by way of a deed of assignment, but a deed is not required. Evidence of the assignment must be produced to IP Australia. The formal assignment or deed of assignment may be produced but is not necessarily required as IP Australia will accept the document signed by the assignor and assignee that makes it clear that the patent has been assigned.
Confidential information and trade secrets
Trade secrets are confidential business information that provides a company with a competitive advantage. This can include formulas, practices, designs, processes, customer lists, or any other knowledge that is not generally known or easily accessible. Trade secrets are not registered with IP Australia, and their value is in that they are secret and not widely known.
Trade secrets may be crucial to a business because they often involve unique methods or insider knowledge that allows the business to be competitive in the market. If a trade secret is leaked or stolen, it can severely hinder the business’s ability to turn a profit. Confidential information, including trade secrets, should be included in any Sale Agreement, and the seller should be prohibited from using such information in the future to compete with the purchaser.
It is debatable whether confidential information, including trade secrets, is a form of property that can be transferred or assigned. A Sale Agreement should provide for the communication of the information to the purchaser and the assignment of all rights of action for or arising from the information to the purchaser.
Transferring social media accounts and digital assets
In the modern era, digital assets such as social media accounts, business emails and phone numbers are critical components of how customers interact with and discover businesses. Ensuring their transfer on a sale of the business ensures consumers can continue to engage with the business and the business is able to tap into the current business’s customer base.
The Australian Government business website (https://business.gov.au/online-and-digital/social-media-for-business) encourages businesses to use social media platforms that are appropriate, including Facebook, YouTube, Instagram, TikTok, Snapchat, X (formerly known as Twitter), Pinterest and LinkedIn.
The sale agreement should outline the procedure for transferring social media accounts, including providing the purchaser with usernames and passwords. It’s important to note that some social media platforms may prohibit account transfers, which could result in the account being shut down. In such cases, the purchaser may need to create new accounts under the business’s name. It will be necessary to consider the Terms and Conditions of the social media platform to determine the appropriate method for the transfer of an account or to establish a new presence.
Transferring a domain name
Domain names are an important part of a business’s online presence, and transferring them correctly is essential for maintaining access to the business’s websites and allowing customers to continue to interact with any of the business’s websites.
Domain names in Australia, the .au country code, are regulated by .au Domain Administration Limited (auDA). A domain name is a unique identifier for which a Licence is issued by auDA to use the Domain Name System. The issue and transfer of Licences is governed by the .au Domain Administration Rules: Licensing.
The process for “transferring” a domain name is similar to a business name. The Licence is not transferred, but the transferee (the purchaser in the sale of a business) must enter into a new Licence Agreement with the domain name Registrar for the domain name.
The procedure is for the holder of the Licence to request a transfer or change of registrant by notice to the domain name Registrar. This request must be made within 28 days of the date of a contract or agreement for the transfer unless the agreement otherwise specifies. The Sale Agreement for the sale of a business should specify an appropriate time for this request to be made, having regard to the date of settlement of the business sale.
The Registrar must be satisfied that both the current registrant for the domain name (the vendor) and the new registrant (the purchaser) are eligible to hold the Licence for the domain name, including the Australian presence requirement.
The current registrant (vendor) must provide its domain authorisation code to the Registrar, and any fees for the Registrar must be paid. The new registrant (purchaser) must agree to accept the transfer, provide evidence of their eligibility to the Registrar, enter into a new Licence, and pay the Licence fee. Any balance of the term of the vendor’s Licence does not transfer to the new Licence.
It is crucial that the parties adhere to the proper procedure and ensure that they are eligible to hold the domain licence, as failure to do so could result in the licence being cancelled.
Other IP
The comments above relate to the most common forms of IP that may require consideration on the sale of a business. Depending on the business and the industry in which it operates, there may be other forms of IP that should be specified and transferred. These may include plant breeders rights, registered designs and circuit layouts. The requirements for the transfer or assignment of these rights, if applicable, should be ascertained and addressed in a Sale Agreement.
Summary
When purchasing a business, the effective transfer of IP assets is critical to the future success of the business. IP assets are integral to the running of the business, and as such, purchasers need to ensure that they are protecting their investment in the business. If you need any assistance with identifying or transferring IP, please don’t hesitate to reach out to one of our IP specialists.
