Eps 92 - REPLAY: Do You Own What You Think You Own?  Ownership is the Building Block of Recurring Revenue Transcript

Erin Austin: Hello, everyone. Thank you so much for joining me today. I hope that, you will be able to join me actually every last Wednesday of the month. I'm going to have a standing LinkedIn live with you where we can talk about what's going on. All these fun issues regarding building scalable and saleable service based business.

So for those of you who don't know me already, I am Erin Austin, and I am the founder of Think Beyond IP. And I am also an intertech intellectual property lawyer who has used her expertise To help service based businesses, female founders of service based businesses grow their businesses into scalable and saleable businesses by creating intellectual property assets so that they have a business that they can sell someday.

And so because it is absolutely impossible for me to have a day like today without having a teeny bit of, Tech issues. I am going to just very briefly. Okay. Oh, it's not going to work for me. So it's all good. talk to you today about do you own what you think you own and so. This is going to be a cautionary tale, because the ownership issues that regard intellectual property are different than the ownership issues in almost every other area. one of thosethink of as being real estate, but generally we have some special issues when we have intellectual property that we have to deal with ownership issues for.

Now, one of the first things we're going to talk about here is legal due diligence.

 because when we have a service based business, we have a business that is based on our expertise. The assets in our business are intellectual property assets. So, yes, we have monitors that may or may not work. and we have printers that absolutely do not work. but mostly our most valuable assets are, is our intellect.

And our intellectual property, and so when we think about building on top of that intellect, let's say we want to create an IP based strategy where we are user intellect to create products, such as a course, or a licensing program that we'll talk about specifically here. Or, maybe even software, we are building on top of, those assets that we want to make sure that we own a hundred percent of, and that, so we don't run into problems later.

So how do we know what we own an intellectual property? Intellectual property are creatures of the law, unlike. A car, or, , land, in order to find out what we own in them, we have to do legal due diligence. And what legal due diligence does is it tracks the ownership of a piece of intellectual property from its creation.

To its current owner, and so we call this, following the chain of title. So intellectual property has to be created by human. At least now, there may be some artificial intelligence, but let's just say that intellectual property is all created by a human, whether it is the human. Who writes something, the human who paints something, the human who designs something, we always start with a human let's take, for example, video.

So, when you have a video, there's many elements of intellectual property in it. 1, we have a script that it's based on 2, we have the actors who appear on screen. And so we have their. faces and their voices are their own. We have the photography. There's cinematographer who's holding the camera.

We may have music. So there's the origins of the music. Maybe there's even some archival footage in there. So we have that archival footage. All of those elements have intellectual property rights attached to them. And in order to be able to exploit that video, we need to have the rights to each of those elements.

You can't just. Have the bundle. The bundle is made up of individual intellectual property rights, and that is true with respect to our service based business as well. So when we have our service based business, we have to think about those intellectual property rights because again, our intellect is intellectual property and how exploited will be governed by intellectual property rules.

So what is special about intellectual property? the owner of the intellectual property is by default the creator. So at the moment of creation, let's say you are a writer. The moment you put pencil to paper, we're consuming right that way that as soon as you put a pencil to paper, you're creating intellectual property, in this case, copyright and you are the owner of it.

and there, unless you are one, the employee of, your employer. So let's say you are an employee of the New York times. So you write your article and because of the fact that you are an employee of the New York times, a W2 employee, by virtue of the fact that you were writing as a part of your duties in your job, the New York times immediately owns.

Everything that you write for your job as soon as it's created. So they are technically or legally the author, even though you are the human who created that New York times is the author. Now let's say that you are writing on a contractor basis. So you have been hired by a third party to write some content for the website.

And you're not the W2 employee, you're a contractor. And there is an agreement in place. So you sign an agreement that says, I am writing this material for you and it says that it is a work for hire. And that is some magic language under intellectual property law that work for hire language. That means that the person who hired you, so, your client, in this case, has hired you to create that content.

And because of that written agreement. That contains that magic language that has worked for hire. The client is considered the author of what you write for them at the time of creation. Well, let's say in that second circumstance, there is no acquittal agreement. So you've been hired and, you interview the client, like what's your business about?

What do you want to feel like? What's your voice? any kind of background information. Terms of art that you want me to include and then you write the copy for their website, but there's no written agreement in place. you've interviewed the client. The client pays you, the client does not own that you actually own that material, the client has the right to use it, but they do not own it and so that is why it is so important that we have written agreements when we're creating.

Any intellectual asset. So how does this affect you? So what could go wrong in your expertise based business? where you are thinking about using your expertise, it's your expertise and you want to create some sort of intellectual property asset Using your expertise, what can go wrong?

So our cautionary tale that I promised you today, we were going to talk about Sally, who is an HR consultant. And so Sally is an HR consultant. Her clients are corporations. So she has corporate clients who are her business, and she provides diversity training for these clients. And so what she does is she goes in and provides in person workshops for every time a new cohort of employees are, brought on board.

She comes in, she does the workshops, that are by diversity training. And so the deliverers will be, her in person. her, workshops include. some, role playing. And so there's scripts for the role playing. she has some handouts that help them, use an identified different scenarios and she also, provides to the client.

A diversity training manual that will be part of their employee handbook. And so these are all the deliverables when she works with her clients and she's currently doing that in person whether virtually or or literally in person, but one on one with the clients. She is providing that service to them.

So Diversity training, very important, but there's only so much that she can do herself. So she would like to increase her impact as well as grow her business by creating a licensing program, for her clients. And so by doing this, she will, instead of going in and training each cohort of employees herself, she will train employee of the client.

To be the trainer, so that's the train, the trainer model. So she will go to the client and In that in house HR team to deliver the workshops the same way that she's been delivering them. They're going to be trained.

They're going to use her materials. They're going to use her scripts for the role playing. They're going to use her handouts for how to identify different issues. And she's going to license to her corporate client that diversity policy that they've been including in their employee manual. And so in that way.

For every one client, which as this is example for every one client that she's currently serving one on one, she'll be able to support 10 of these clients slash licensees. And so, a licensee is not kind of a set it, forget it. You do still need to support a licensee by continuing the training and making sure you're updating materials and things.

 so for everyone. 1 client, she can train currently, she can have 10 of those licensees. and let's say she's never had any problems with the materials that she's currently using. So, why is this a problem? Well, increased visibility equals increased scrutiny. So, in our example. The only people, and I'm going to use organizations and their people, that are seeing her training materials are those who are paying clients.

So let's say she serves a handful of clients per year on her one on one basis. So those are the only people who have eyes On her program, so now she's going to 10 X, the number of clients that are now her client slash licensees, because she's now for everyone that she's been serving. She can now serve 10.

so now there are 10 times more sets of eyeballs on her materials. And let's say that in order to, sign 10 licensees, she needs to present to and provide a preview of materials to 100 potential licensees. So now there are 100 times. As many eyeballs on her materials that there were previously. Now this is not to suggest that she has anything to hide or suggest that she's done anything wrong.

But what happens is when you have 100 times the exposure, it's just the possibility of just Kind of the natural cross pollinization that happens within an industry, that someone can recognize something within those materials that she absolutely thought she had the rights to use, that maybe she didn't own everything that she thought she did.

So let's talk about what some of those things could be. So there are a number of issues Where you can think that you have rights to something that maybe either you didn't get all the rights that you thought you did, or you gave away more rights than you thought you did. And so those are contractors, employers, employees, a couple of instances with clients and third parties.

So let's start by talking about contractors. So we talked about our example from before. Sally, this one, Sally has hired a contractor to create those scripts for her. So she has all of her expertise. She knows all the things that she wants to cover. She wants to cover all these different types of scenarios.

She hires this writer to create the scripts that will be used in the role play. In the workshops, and she hires the writer, she pays the writer, the writer delivers those scripts, but there's no written agreement. So guess what? Guess who owns those scripts? The writer owns them. Sally does not own them. And so, when she's working with her handful of clients on a 1 on 1 basis every year, no problems, but then she suddenly has a new client.

A dozen licensees and one of these other licensees has someone who's seen these scripts before because they saw these scripts at another, business that they worked on because that writer owns the rights to those scripts. They've been selling them to other diversity trainers and there's nothing that Sally could do to prevent that because she doesn't own those scripts.

With employers, Sally came, she was corporate, she is a corporate refugee. And so she left corporate to start her own HR diversity consultancy. And so while she was at her prior employer, she was in the HR department and it was her job there to write the employee manual. And so she wrote the employee manual based on her many years of experience in the HR.

Field. And when she left, she took some parts of that employee manual with her. And so she's been using that employee manual as part of the deliverables for her new clients. Again, she's had her handful of employee, of clients and it's not come up, but once she starts expanding the number of people who she is sharing these deliverables with, again, that cross pollinization, the possibility that someone from her old employer is now at one of these new clients and says, hey, Hey, I've seen this before and suddenly she has a problem that she never had before.

That same issue can show up when you have employees. So Sally, hire someone to help her, create some materials for the business. and they come from a corporate background. And, they've been in the HR department at their old employer and they have materials that they bring with them to help them.

Sally, and again, we have a problem because those are that X employers materials, not Sally's proprietary materials and increased visibility, increased scrutiny. The other way you may not own everything, think you own is those clients, the client agreements. Well, clients are good. The client agreements are where you can get into trouble.

 Times. If you're working with corporate clients, they will require you to sign a services agreement and that services agreement will have been prepared by their lawyer. And it will have language in there that says that all of the deliverables are owned by the client and it will have magic language. It will have that magic language that it is work for hire.

 it probably in this case that would not qualify as work for hire, but they would have this extra language that's. Says to the extent it's not a work for hire, then you assign all rights and the deliverables to the client. So the end result is that the client owns 100 percent of those deliverables.

Well, what are your deliverables? Your deliverables are your scripts and your workshops and your employee manuals and all the things that you need to be using with your other clients. and maybe. it's never been a problem. You've had your handful of clients doing your one on one work.

And so a client actually believes they own it all. They don't actually realize that they don't own it all. And well, they do own it all, but they think that they own it exclusively. And, but lo and behold, you start creating a program where you have dozens of. Licensees and suddenly they notice, well, other people have the same things that I thought were created specifically for me as your client, because I have this agreement that says, I own all these deliverables.

So, again, once you start building out your client base. You might have some problems and the part 2 to the client, conflicts are those, services agreements that may include non compete provisions. So, the service agreement may say, you cannot provide services to 1 of my competitors and, you know, depending on the nature of the industry that you serve, that won't be unusual.

Let's say you have pharmaceutical clients, like almost every 1 of their services agreements will say something like that. And if you have your handful of clients that you've been working with, one on one, that's never been a problem. But when you start trying to increase the number of people who have access to your materials through your programs, then suddenly again, you have issues that arise that have never arisen before and then finally.

The third party materials. So let's take Sally. So Sally leaves her corporate job. She started her own consultancy. She wants to have some credentials. So she goes out and she gets a certification in diversity training. And part of that certification includes materials that she is allowed to use to provide workshops to her clients.

Does it include permission to use those materials? to license those materials to third parties? Probably not. It'd be fairly unusual for you to be able to create your own licensing program on top of materials that you've licensed from a third party. So again, once you have that greater visibility, So that increased, that larger client base, starting your licensing program, whatever product that you create, then those issues that were never an issue before in your one on one practice can become big issues.

So that is. why I would like you to make sure that we do due diligence before we start building on top of your intellectual property. So, I hope that, this has been, Oh, I like the way that shows up. I've been interesting for you. I would be happy to take any questions from you. And also I do want to mention that, my last LinkedIn live was about creating licensing programs.

And so you might want to check that out as well. If this is something that you've been thinking about is using your expertise to create a licensing program. So that's more about the nitty gritty of creating a licensing program. Or about, the legal issues underlying them. and if you have any other issues that come up, you're watching this later, just send me a note, I'm happy to address those, you have some tangential issues that you'd like me to create a future LinkedIn live and to cover, please let me know that as well.

I'd love to hear from you. So I have a question here. when you are working with a collaborator, can you talk about how, you know, who owns what? So, yes, great question. There are, again, specific rules about who owns something when you have a collaboration. And so there's thing called a joint Copyright.

And so the two of you, if you come together and create something together, like sometimes people will write screenplays together, books together. And so, unless you have something in writing, the default will be that you both own 100 percent of the copyright equal, together, which is kind of a funny concept.

But that means each of you, um, Can license it you each of you has the right to license that copyright to a 3rd party without getting permission from the other one. And so you want to make sure that if that is not your intent that you have something in writing to make sure that, You can only exploit it, in a way that is mutually agreed, maybe one of you is really the brains behind it.

And the other person is helping, maybe you're writing a children's book and you're writing all the words. And so you've hired, the text and you've hired someone to do the illustrations for you. if you don't have something in writing, the illustrator owns those illustrations. You don't.

So you, again, you want to make sure you get something in writing that, you are the author of the book, you're writing the text, and you've hired that illustrator to work for you so that you are considered the The author, in copyright terms of those illustrations as well. So super important.

So another question, is it more advantageous to bring someone in as a partner, subcontractor or employee when talking about who owns what? So The most protected way of owning the copyright in something that is created by someone other than you. So if there's a third party creating intellectual property for your benefit, the most protection comes with an employee.

So the employee, your W 2 employee, it is as if you sat down and wrote it yourself. It is. The no distinction between you and that employee who's creating and by you, I mean, the employer, which I'm going to, it could be you as an individual, but I'm going to assume it's an organization. So it's your, company.

And so, when you have an employee create something in the course of their employment, it is as if your company created it. The next best way is through. A written agreement with a subcontractor that has work for hire language in it , and it has, a catchall of assignment and it's a little bit nitty gritty, but basically that work for hire is the same as if.

You wrote it yourself, kind of like the employee. However, when it's a contractor, there are very specific categories that are named in the copyright laws, very specific categories that meet the work for hire, threshold. And so that's why we always also have this extra language that says, in the event it's not, doesn't qualify as work for hire, you also assign all the rights to me and when you do an assignment, there is an opportunity for a reversion that does not exist with work for hire.

So, work for hire is the best than an assignment. if it's true partnership, there may be some joint ownership of the rights. And so that 1, we need to really carefully draft and make sure that, um, works out the way that you want it to.

So this has been a lot of fun for me. I hope, it was educational for you. And again, I hope to see you here, for the last Wednesday in May for another LinkedIn live. And please let me know if there are any topics that you would like me to cover regarding intellectual property, regarding licensing, regarding exiting a service based business.

Those are all things I love to talk about and I'd be happy to share it on the next one. Oh, thank you, Danielle. I got a nice. Thank you. if I could figure out how to put my banner on here, I shall. So I have a podcast that's called the hourly to exit podcast, where we talk about all these things, the journey from a.

Unsustainable hourly based business model to one that is sustainable and scalable and hopefully saleable where we have a service based business where we have decoupled our income from our time and we talked to all sorts of wonderful guests Many names that, you know, like Rochelle Moulton and Jacqueline Malone and so I hope you'll come and join me there as well.

So it has been a pleasure to be here with you today. Thank you so much.