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The Right Business Structure to Protect Your Assets

The Right Business Structure to Protect Your Assets

The Right Business Structure to Protect Your Assets

Once you have made the decision to operate your own business, choosing the correct structure is the next step. Keep in mind that your business structure can change if your business grows in a direction that would suit a different structure. It makes sense to seek legal and financial advice before getting started, so you can tailor your business structure to your unique circumstances.

In Australia, your main options for establishing a business are:

  1. Sole trader
  2. Partnership
  3. Joint venture
  4. Company
  5. Trust

Getting a business name is not setting up a business, it is just registering a business name. We’ll discuss that a little more at the end, for clarity.

In deciding which option would best suit you and your business ideas, think about the following:

  • Your existing assets, income, tax and other ownership structures
  • The simplicity of the new structure and your initial set up costs
  • The type of business you would like to operate and the size of the business
  • The likelihood and speed of business growth and the requirements for investment
  • The tax impact upon the business and on you
  • The type of management and control levels required to operate successfully
  • The number of people involved in the management or ownership of the business
  • The degree of flexibility required to adapt as the business evolves and expands or moves in a new direction to first planned
  • The potential risk of the new structure failing and what impact that could have on you
  • The costs and ease of ending the business if it doesn’t turn out

Let’s have a look at potential business structures in light of the above factors.

1. Sole Trader

A sole trader is a very simple business structure and there are minimal set up costs involved for you as the business owner. You will need to register for an Australian Business Number (ABN) in your own name.

If trading under your own name eg. “Harper Lee Consulting” then you don’t need to register a business name. But if you want to trade under another name “Awesome Consulting” then you will need to register a business name. You are still the business, it just has a name that is not your name.

You will bear the responsibility over all of the business functions and will be completely personally liable for all of the debts that the business incurs.

If protection of your personal assets is important to you then this type of business structure might not be the most suitable for your needs. If you own a home or an investment property in your own name and someone sues the business, they are suing you and your property is on the line.

A sole trader business can have quite limited growth potential as it is heavily reliant on the owner and often can consume vast amounts of an owner’s time and resources. Even as a sole trader, you can employ other people, but the business is still intimately associated with you.

A sole trader business will pay tax at the personal tax rate applicable to the business owner.

It is relatively easy to end a sole trader business and cease trading, provided any debts of the business are paid in full.

A good example of a sole trader business could be a business consultant, a freelance writer, an at home hairdresser or a tradesman such as a painter.

2. Partnership

A partnership is similar to a sole trader, except it involves more than one owner. It trades under a registered business name and a partnership can comprise of owners with similar skills (eg. business brokers) or owners with complimentary skill-sets (eg. a graphic designer and a website developer).

Like sole trader businesses, partnerships are easy to establish. You simply register an ABN naming each of the partners in the application. It is also wise to have a partnership agreement prepared to protect the interests of everyone involved, while everyone is still friends and the business is working well. Partnership break ups without a written agreement are a bit like a divorce and can be messy and expensive.

Traditionally, law firms and accounting firms were structured as partnerships.

We’ve seen law firms dissolve without ever having had a partnership agreement and all the profits left in the business were spent on attempting to resolve disputes between the partners when it came to an end.

Partnerships are better for whole of business long term ventures between people. They are not really suited to short-term, part-time enterprises.  The number of partners can vary and can be comprised of individuals, or companies, or trusts.

Each owner pays tax at their own individual rates, depending on their share of the partnership profits. Partners don’t have to hold equal shares and can be split depending on the contributions of the partners. A partnership will require the agreement of all parties if the ownership structure or members are to change, and it is possible that a new ABN will be required if partners change.

When a partnership is working smoothly, it can be a great vehicle to operate a successful business. When a partnership is affected by personal differences between the owners, it can impact quite considerably on the successful business operation. Each partner is 100% liable for all the business debts and their own personal assets can be at risk if the partnership cannot repay its debts or taxes. This is the case even if the partner had nothing to do with incurring the debt in the first place.

We’ve seen partners in business lose their home because one of the other partners committed fraud through the partnership and went to jail, without being able to pay back the missing money. The people owed money were entitled to chase the other partners in the business to get paid, even though they knew nothing about the fraud.

3. Joint Venture

A joint venture is usually set up by a written joint venture agreement between the parties for a particular purpose or project. It is a good structure for operating a specific project instead of continuing indefinitely. It can vary how many entities are involved and can be comprised of individuals, or companies, or trusts.

It is best to seek legal advice before signing a joint venture agreement to ensure you understand your contribution to the venture, what happens when things change during the project and to ensure you are adequately protected if the joint venture is not successful.

A joint venture helps to grow your business through collaboration with other entities that have complementary skills or financial resources. The structure can vary depending on what you want to achieve, the governance type and obligations as well as the division of profits and losses to the parties. The agreement should also contain the process for disagreement or dispute resolution, if the parties’ relationships break down.

Each of the joint venture members are responsible for the profits, losses and costs involved in undertaking the joint venture project. The joint venture is a distinctly separate entity from the members other businesses and assets.

An example of a joint venture might be the combination of ride-share giant, Uber, with vehicle manufacturer, Volvo, for the purpose of producing driverless motor vehicles.

4. Company

A company is a separate legal entity to the business owners. It is a legal vehicle that can incur debts in its own name, can sue and be sued by other parties. It does not cease if an owner passes away but exists until it is wound up. The business owners are the shareholders and can often hold the position of director and secretary as well, particularly in a small business arrangement.

A director is responsible for the management and governance of the company and need not be a shareholder. A company secretary is responsible for ensuring that the reporting obligations of the company are met.

If you are considering setting up a company, you will need a company name, you will have to set up a governing structure with a constitution suitable to your business. The company must be registered with the Australian Securities and Investments Commission (ASIC) and will incur a yearly fee.

There are many complex parts to a company and essential for you to speak to your accountant or lawyer, or both, prior to setting up a company structure. It can have considerable set up costs compared to other entities and there are many legal obligations of the office-bearers. However, there are considerable benefits too.

It is an excellent vehicle to conduct business and ensure your personal assets, such as your home, are protected against legal action.

We had a client who, after audit, was required to repay some tax rebates received as R&D credits, together with penalties. The shareholders thought they had to sell their home to pay the company’s debt. They did not. The company remained responsible for its own debts and the shareholders got to keep their house.

Unless you give a personal guarantee for a business loan, then your private assets are protected. Since the company is a separate legal entity, it has a separate liability from the business owners. It can incur debts that are limited to the value of the company. If an aggrieved party sues the company for the outstanding debts, it is limited to the company itself and cannot sue the owners, unless they have given a personal guarantee, or fall within a category of liability where directors can be found personally liable – such as failing to pay superannuation.

There are other benefits with respect to taxation as well. The company pays tax at a company rate and can pay “fully franked” dividends to its shareholders, which can be very attractive to the business owners, depending on their individual circumstances.

Since November 2021 directors of companies (along with some other entities) now must be issued a Director Identification Number (DIN) which is issued by ASIC.

There are two types of companies – a privately owned company and a publicly owned company. So what is the difference between a private company and a public company in Australia?

4.1. Private Company

A private company is distinct from a public company because it is privately owned. It will often have “Pty Ltd” after its business name, and this means ‘proprietary limited’. This indicates it is privately owned, with limited liability.

A Pty Ltd or proprietary limited It is the most common structure for small businesses. It is incorporated, issues shares, will have a maximum of fifty shareholders, and each of the shareholders are not personally liable for the debts of the business. They will only be liable for any unpaid financial value of their shares. What this means if that if you purchase 10 x $1 shares but only pay the company $5 at that time of purchase, there will still be 50c owed against each of your 10 shares, and that must be paid if called by the company.

A private company is for protection of your personal assets. There are a large variety of share structuring options available, so it is definitely an option to discuss in greater depth with your accountant or lawyer.

4.2. Public Company

A public company is a company that can be listed on the stock exchange and is funded by investors, or a company to be limited by guarantee and operated as a charity or not-for-profit.

Not for profit means the members or shareholders are not entitled to a distribution of the profits of the business and the profits must be reinvested back into the business. In a for profit company, members or shareholders are entitled to receive a distribution of the profits if dividends are paid. Business is not sustainable if it does not generate a profit.

A public company often has “Ltd” or “limited” after its name to indicate that it has limited liability.

For profit public companies have a complex structure and are required to issue public documents when paying dividends or raising capital. Qantas is a public company. Any company you can purchase shares for on the Australian Stock Exchange is a public company.

A public company remains an option if you grow your business to the point where you would like to take it public and raise considerable share capital through a public offering.

A not-for-profit public company is an appropriate structure for a large charity.

5. Trusts

A trust can be an excellent asset protection structure, but you will need tailored legal and financial advice to correctly suit your personal circumstances. A trust is a vehicle that enables a trustee to act in the best interests and hold property or income for a particular purpose, for the benefit of the beneficiaries or trust members. The trustee can be an individual or a company.

Whilst there are many types of trusts available, there are two main types of trust used in small business. They are:

  1. Unit Trust
  2. Discretionary or Family Trust

The trust is set up with a formal trust deed that provides guidance on the way that the trust operates and the powers of the trustee.

There are other parties named in the trust deed – such as the settlor who won’t have any future involvement in the trust, but who is essential in its establishment.

Superannuation trusts are often established with limited investment categories, for example, an inability to invest in cryptocurrency.

The trustee is responsible for administering the trust. Provided that the trustee behaves appropriately, the trustee is usually entitled to be indemnified out of the trust fund for any liabilities incurred in association with the administration of the trust. If the trust is an individual trustee, their own personal assets can be at risk if the trustee is sued and a good reason to appoint a company as a trustee.

A trust may also be entitled to a 50% capital gains tax exemption, but a company is not. You should seek accounting advice when reviewing your tax obligations.

A discretionary trust is the most common structure in small business.

A unit trust is one of the most common structures for small property development. 

Unit trusts have certainty in proportionate interests, whereas a discretionary trust is variable depending upon the decisions of the trustee. Where a greater degree of certainty in financial dealings of trust property is required, the unit trust is more effective. Each unitholder of the trust holds a specified number of units and the trustee has no discretion to give unitholders distributions that are inconsistent with the rights of other unitholders. You can transfer a unit to another unitholder, just like shares in a company.

We normally recommend that people involved in a unit trust structure enter into a unitholder agreement, similar to a shareholder agreement, to better protect their interests.

How can Onyx Legal help you?

Book an appointment to talk with one of our team about your business structure and whether it is still the most appropriate structure for what you are doing and what you’d like to achieve.

Your Guide to Terms & Conditions

Your Guide to Terms & Conditions

Your Guide to Terms & Conditions

The last few years have seen lots of businesses pivot to make greater use of online tools and increase the opportunity for online sales.

As a business owner you should be considering the exposure of your online business and in particular, when you last updated your terms and conditions, your privacy policy and your disclaimer – or even if you have them to protect your business.

The post COVID-19 era has resulted in more important updates, changes and governmental compliance responsibilities than prior to the pandemic, and increased the complexity of navigating the online business world.

Your terms and conditions set out essential protections for your business including identifying which laws govern your website and business, reducing your chance of a dispute arising, giving you the freedom to remove unwanted people, and placing responsibilities on the user that are important to the way you do business.

Having terms and conditions can significantly reduce any future problems from arising, if you have taken the time to obtain appropriate legal coverage.

Services Online

If you sell a service and have any type of intellectual property, such as an education course or unique planning tool, you will want to ensure one of your terms and conditions include protection. As other businesses move online, they may copy some of your own website and design, so a copyright clause can at least alert visitors to your website that you intend to protect your intellectual property and caution them against copying it.

As a practical tipdo not copy someone else’s website content. It is copyright infringement. If you are checking out what your competitors are doing and want to create something similar, at least choose a competitor on the other side of the world who might have a totally different client base. Don’t copy your local competitor just down the road and expect them not to get upset!

Be innovative. Even if you sell hard products, you can use your online environment to create membership communities, offer education, host competitions etc.

Goods Online

If you manage a type of retail or goods-based business, necessary terms and conditions would include your refund and return policy. Ideally this would set out in very clear terms what the customer should expect in the event that they sought a refund or wanted to return their items.

Your customer must be aware of your terms and conditions before purchase for them to be binding. It saves a lot of hassles and time down the track if your terms of trade are clear and easy to access. It is worthwhile noting here that some terms and conditions cannot override Australian consumer guarantees. Any attempt to limit the Australian Consumer Laws (ACL), is invalid. Consumer guarantees now apply to products and services with a value up to $100,000, regardless of who the purchaser is. 

We can help you navigate your obligations under Australian Consumer Law.

Interesting Recent Cases

Consider the 2019 case of Australian Competition Consumer Commission (ACCC) v Jetstar.

Jetstar tried to present their air fares in a way that excluded any right to a refund for the cheaper air fares. The ACCC commenced proceedings against Jetstar for false and misleading representations, as well as breaching the automatic consumer guarantees that cannot be excluded, restricted or modified, no matter how cheap the air fare was for the consumer.

The Federal Court ordered Jetstar to pay a financial penalty of $1.95 million for the breaches as well as an undertaking to commit to amend its policies and practices to ensure they are consistent with the ACL. This undertaking was court-enforceable if they did not comply.

Another recent case that illustrates the importance of having express terms and conditions is the case of Hardingham v RP Data. Hardingham was a real estate photographer who had an exclusive licence with his business ‘Real Estate Marketing Australia Pty Ltd’ (REMA) for the copyright of his works. He had an ongoing informal oral agreement between him and the various real estate agencies for the use of his photographs and floor plan images for the agencies marketing campaigns. He did not have any express terms and conditions in place between him and the various agencies.

These agencies would then upload his work to Realestate.com.au for the marketing campaigns. In order to proceed with the upload of the photographs, the agency (often a subscriber) would need to agree to the terms and conditions on the website as set out by Realesate.com.au. The terms and conditions on the Realestate.com.au website contained a sub-license to “other persons” in a detailed form.

Realestate.com.au then sub-licensed to RP Data who then published the photographs on its websites and superimposed a logo on the images. RP Data is a subscriber-only database of real estate sales and rental history. After an appeal to the Full Court of the Federal Court of Australia, the court held by 2:1 majority, that the sub-licence to RP Data who then used and manipulated the photographs and images was an infringement of copyright.

The court held that the original owner of the copyright did not agree to the sub-licence when it verbally agreed to the various real estate agencies uploading the images to Realestate.com.au.

We have assisted professional real estate photographers to prepare appropriate terms and conditions for the use of their images to ensure they are paid for use.

This case is a good example where the copyright owner might have avoided going through the expensive and lengthy court process, and the subsequent need to appeal, to receive a judgement in his favour, if he had express terms and conditions that explicitly set out the use of the photographs and images.

Since he had only oral agreements between him and the real estate agencies, the court had to determine if the implied terms were so obvious and were necessary to give business efficacy to the contract. Thankfully the Full Court found that there was such an implied term in this instance.

COVID-19 Impact on Terms and Conditions

Consider another recent case that relied on terms and conditions under a contract that was affected by COVID-19 shutdowns is the case of Dyco Hotels Pty Ltd v Laundry Hotels (Quarry) Pty Ltd. This case concerned the sale of the Quarryman Hotel in Pyrmont, New South Wales (NSW). The contract was signed on 31 January 2020, with the date of settlement set for 27 March 2020.

The contract price was for $11,250,000 and included the associated hotel licence, the gaming machine entitlements and the hotel business itself. The deposit paid by the buyers was $562,500.

In the sale contract, there was an Additional Clause 50.1 which imposed various obligations upon the vendor, including the obligation to continue to operate the business “in the usual and ordinary course as regards to its nature, scope and manner”.

On the 23 March 2020, 4 days before settlement, public health orders issued shutting down the majority of hospitality services. This made it unlawful for the hotel to continue to operate, except for takeaway food and drinks, in accordance with the public health directions.

The buyers argued that the business sale was frustrated by the public health orders since the hotel was no longer able to operate in the “usual and ordinary course as regards to its nature, scope and manner”. They asked for return of the $562,500 deposit and claimed the value of the assets decreased by $1 million due to the public health orders.

The vendor disagreed.

The vendor’s position was that the hotel continued to trade as a going concern within the confines of the health orders and in accordance with the legal restrictions that had been imposed upon it. If the vendor had operated contrary to the public health orders, it would have placed the future operation of the business in jeopardy, including the hotel licence to operate. This would have damaged the goodwill of the hotel. The vendor also argued that they were entitled to terminate the contract, retain the deposit and seek damages for the loss of the bargain.

The NSW Supreme Court found in the vendor’s favour and held that the contract was not frustrated by COVID-19 public health orders. The vendor was entitled to keep the $562,500 deposit and recover damages as well for the loss of bargain. The court assessed the damages to be $900,000 and deducted the deposit of $562,500 from that amount.

Although the terms and conditions in this case were not online but contained in sale documents, it does demonstrate that carefully considered terms and conditions can make a big difference to the outcome of a dispute. 

The purchasers might have been better protected if there were any contractual warranties given by the vendor about the future financial performance of the hotel. Since there were no warranties given, the purchasers accepted the risks.  The purchasers were experienced in the Sydney hotel operations business and understood the various potential risks of legislative changes, despite not being familiar with the impact of a pandemic.

This is a good illustration of the impact of the COVID-19 pandemic on terms and conditions and contemplation of the risks associated with business operations. Following the lessons in this case, a vendor would be wise to include business conduct obligations under the contract that can be altered or changed to comply with public health emergencies. A buyer would be wise to include options to terminate the contract in the event where the value of the business has dramatically dropped due to unexpected circumstances.

Another COVID-19 impact on the operation of businesses can be seen in the recent case of Flight Centre Travel Group Limited Trading as Aunt Betty v Goel. Terms and conditions were online and agreed to by click wrap agreement – where the buyer has to check a box stating they agree to terms and conditions before being able to complete the purchase.

In the first hearing, Goel had been awarded a refund on the basis that the purchased flights hadn’t been received.

On the 5 November 2019, the customer (Goel) had made a booking online, for the return flights from Sydney to Delhi scheduled for flights during April 2020. The $2,336.30 flights were with Malaysia Airlines which cancelled the flights during March 2020, when COVID-19 public health orders restricted international travel.

The terms and conditions stated that Flight Centre was only agent and not responsible for delivery. If that were the case, Malaysian Airlines would have been liable to provide the refund, not Flight Centre.

The case we are referring to was an appeal by Flight Centre where it argued that the business Aunt Betty operated as an agent, and not the supplier of the service and therefore was not liable for actions by the airline in cancelling the flight. It would have set a damaging precedent for Flight Centre to be liable to refund all booking costs where it had not received the bulk of those funds, which had been passed on to the suppliers (like Malaysian Airlines) pending delivery.

The tribunal, on appeal, held that Goel would have been aware at the time of booking that he had booked the flights with an agent and not the actual airline carrier itself. It is interesting to note that the court decided that the booking could not have been made without the positive acknowledgement of the terms and conditions on the website. The court also decided that there was no breach of the consumer laws by the agent, and it was not liable to provide the refund.

Conclusion

In order to operate your business successfully, you need to be mindful of the ever-changing landscape that both COVID-19 public health emergencies create, and the increasing demands shaped by conducting more business in the online space.

The pass of change suggests you have your terms and conditions of trade reviewed and updated more frequently, with consideration of all aspects of a transaction.

If you are contemplating signing any contracts for business sales or purchases, it would also be advisable to ensure you are covered in the event that COVID-19 emergency public health order impacts adversely on the contract price and business valuation or operational requirements.

The new year is also a good time to evaluate your privacy policies and disclaimers, as well.

How can Onyx Legal help you?

We love reading and writing terms and conditions. Someone has to do it. It’s fun for us. If your terms and conditions are like a different language for you and you’d rather not think about them, let us help. Book a time to chat with one of our team about how we can help update your online terms sooner rather than later.

Online Learning: Protecting Your Business Online

Online Learning: Protecting Your Business Online

Online Learning: Protecting Your Business Online

consumer protection

Did you know that all businesses must comply with consumer protection laws?
 
Do you understand how consumer rights affect your business?

PRIVACY FOR SMALL BUSINESSES

All business owners must understand their obligations under Australian Privacy Laws.
 
To ensure your business stays on the right side of the law, watch our video to see our Principal Lawyer, Jeanette Jifkins, explain Privacy Law in Australia in more detail.

TERMS AND CONDITIONS

Terms and conditions help protect you and your consumer. So what do you need to include on your website?

Watch our video to see our Principal Lawyer, Jeanette Jifkins, explain.

website ownership basics

Who owns your website and what does that mean?
 
Did you know there is a difference between your domain name and what people see on your website?
 
Watch our video to see our Principal Lawyer, Jeanette Jifkins, discuss website ownership.

understanding copyright law

Watch the full video on Understanding Copyright Law below.

managing testimonials, comments, and reviews

Let’s talk testimonials and no, you can’t make them up.
 
How do you manage them? Are you allowed to use testimonials for advertising? Can you edit them?
 
Watch our video to see our Principal Lawyer, Jeanette Jifkins, answer all these questions.

anti-spam

Spam is an electronic commercial message that can include email, phone and even online chat platforms.
 
When done incorrectly it can be easy to create marketing that your audience may categorise as spam.
 
If you want to avoid this we recommend watching our below video to see our Principal Lawyer, Jeanette Jifkins, explain anti-spam in more detail.

How can Onyx Legal help you?

We’re interested in strategies that support you and your business to grow and get stronger. If you receive a nasty letter of demand and want help in figuring out how to respond, contact us to help you map the way forward.

What is the Difference between Trade Marks and Copyright?

What is the Difference between Trade Marks and Copyright?

What is the Difference between Trade Marks and Copyright?

Trade marks and copyright: the difference explained

For many businesses, intellectual property is one of their most valuable assets. We often get questions from our clients on how they can best protect their intellectual property, but what we have noticed is that many of them struggle to identify what specifically they are trying to protect.

This is completely understandable because intellectual property comes in many different forms. The two most commonly used types of intellectual property protection are trade marks and copyright.

In Australia, we refer to trade mark in two words, consistent with the legislation. Overseas, it is common to combine the words to ‘trademark’. They each refer to the same thing.

Some of the frequently asked questions we get include ‘What can I trade mark?’, ‘Can I sue someone for using my trade mark?’ or ’How do I protect my copyright?’. In this article, we will answer these questions for you.

Firstly, let’s explore the difference between the two.

Trade marks – protection of your brand

If you have been running your business for some time and have established substantial goodwill and reputation, your business name becomes your brand. Your brand is your trade mark. Two of the fastest growing trade marks in 2020 were TikTok and Zoom. When you hear those names, you can immediately bring to mind the kind of services each platform offers, even if you haven’t used them yourself.

Think of a trade mark as a ‘badge of origin’. It is anything that distinguishes your goods and services from those offered by other traders in the market. It can be your business name, logo, slogan, colour or even a sound, or a smell – although scent marks are very rare.

Your trade mark is a valuable marketing tool. The purchasing decisions of consumers are often influenced by the brand, so the higher your brand recognition, the more you may want to prevent your competitors from using a similar brand to provide similar services and benefit from your hard-earned success.

Think about how people by cars, or shoes. Many people favour a particular brand of motor vehicle because it is either something they have always driven, or it has a brand promise that they believe in or relate to. For example, Toyota is known for reliability, and Ferrari is the world’s most well known racing car. In shoes, people will often favour a brand like Asics, or Adidas, or Nike depending on their preferred sport, or sports stars.

So, how do you gain the exclusive right to use your trade mark and take actions against those who infringe it?

The answer is by registration. We will talk about this further below, first lets look at how copyright is different from trade marks.

Copyright – protection of your original creative works

Copyright has more substance that a trade mark and is more likely to be judged on the amount of creative input required to develop the work to be protected. Where a word can be a trade mark, a word by itself won’t be protected under copyright.

Copyright protects the creation of literary, dramatic, musical, artistic, and certain other types of intellectual works.

When you write a book, you are the copyright owner of that book (unless you have agreed to transfer your copyright to someone else). When you create online education materials, all your materials, including videos or audios, are your copyrighted material.

Just like trade marks, your copyright materials can be extremely valuable to your business. But unlike trade marks, you do not need to register copyright to gain protection. Copyright is generated automatically upon creation of the work.

There is one exception to that rule, and that is the registration of digital works in the United States. If you want to claim protection of a digital representation of your work in the United States, you must first register that work with the Electronic Copyright Office.

To have copyright protection, you must document your ideas and have it in some sort of tangible form. The easiest way would be to write it down. A visual or audio recording is also sufficient. It is important to understand that a mere idea is not protected. This is part of the reason that businesses rely on non-disclosure agreements and confidentiality deeds. Those sorts of agreement can provide you with protection of an idea before it is discussed and before it has been documented or produced in some other form capable of copyright protection.

What protections do you need?

As you can see, trade marks and copyright are two very different types of intellectual property. What you can do to protect them is very different too.

Trade marks – protection by registration

A trade mark can exist without being registered; however registration gives you the exclusive right to use your trade mark and makes it much easier to defend.

What this means is that you will have the legal right to stop others from using your trade mark and when necessary, take legal action against them to defend your rights. Just be aware that it is your responsibility as the trade mark owner to keep an eye on the marketplace and identify any infringement or potential infringement of your trade mark. When you see someone using your brand, or something very similar to your brand, you should tell them promptly, and request that they ‘cease and desist’ the infringement.

From time to time, we have clients who have already contacted someone they believe to be infringing their mark without persuading that person to stop their infringement. Sometimes, this is because our client doesn’t have the rights they thought they did, and sometimes it is because they have stated their rights incorrectly. It is important to check what rights you have first, before making any claims. We have a number of strategies for communicating with infringers to bring about a quick resolution to your concerns.

In Australia, if you do not have a registered trade mark, it can be an offence for you to threaten legal action against someone for using your trade mark. If you do have a registered trade mark, you should be notifying infringers that you do, and asking them to stop infringing your trade mark. This is usually done with a cease and desist letter.

Copyright – protection by documenting your ideas and creating tangible material

Registration is not required to protect copyright. Copyright material is protected as soon as it is created (in tangible form, that is). As the copyright owner, you have the exclusive right to reproduce your work, commercialise it, and be recognised as its creator.

As already mentioned, the one exception is the requirement to register a digital work with the Electronic Copyright Office in the United States if you want to take action against someone in the United States for copyright infringement.

Unlike trade marks, we are not aware of any countries outside the United States that have official registers or databases for copyright, so in most cases, people won’t be able to conduct searches to see if something is an original creation.

Because there is no form of registration and in pursuing someone for infringement you might be required to demonstrate that you are the original creator of the work, it is especially important for you to use one or more of the following strategies to protect your copyright:

  • keep a record of your evolution of ideas – as evidence of the progression of your work
  1. drafts, sketches, rough recordings, plans etc
  • insert footprints into your work (eg. deliberate mistakes or hidden data that identify you as the author)
  • watermark your work
  • use technology to make it harder to copy your work electronically
  • include a copyright statement on your work – this alerts people to the fact that your work is subject to copyright and you intend to protect it © [your name] and [the year the work was created]
  • include copyright use provisions in the terms of use or terms and conditions of your website that clearly set out what people can and cannot do with your published work
  • provide your contact details so people can ask for permission to use your work
  • if your work gets used regularly in educational institutions, government or big business, then register your work with the Copyright Agency to receive any royalty payments collected on your behalf
  • have template cease and desist letters you can send to people you believe to be infringing your work, politely asking them to stop.

What happens if you don’t take steps to protect your interests?

Under both trade mark and copyright law, if you don’t take steps to protect your interests you can lose your rights.

For trade marks, you must use the mark in the form registered, and take steps to stop others using your mark in order to keep the protection that registration provides.

For copyright, if you don’t let people know that they are infringing your copyright, you can make it harder to prove that you created the work in the first place, and if you knowingly let things pass, you may be deemed to have given permission for use.

Consider creating an intellectual property register for your business so that you can keep track of your different types of intellectual property, when they were created, who created them, and what you have done to protect it. Your intellectual property is an asset to your business.

How long do protections last?

Trade marks – 10 years

A trade mark registration lasts for 10 years from when you first file your application. You can renew your trade mark registration by paying renewal fees any time before the expiry of six months after the date your registration is due to lapse.

Copyright – creator’s life plus 70 years

The duration of copyright can vary depending on the type of work and whether the owner is an individual or a company, but generally in Australia, it is the life of the author plus 70 years.

Summary

To summarise the differences between trade mark and copyright protection:

  • your brand and logo are protected as trade marks, upon registration
  • your content and materials are protected by copyright, upon creation
  • you can and should take a variety of different steps to protect your intellectual property

Need help?

If you would like help identifying your valuable intellectual property, creating an intellectual property register and protecting your intellectual property, contact Onyx Legal.

Intellectual Property Protection – What is it? & Why You Need it

Intellectual Property Protection – What is it? & Why You Need it

Intellectual Property Protection – What is it? & Why You Need it

What IS INTELLECTUAL PROPERTY? 

If you are a business owner, it is important for you to understand that your intangible assets, the ones you can’t pick up and hold, are just as valuable as your physical property.


If you haven’t appreciated the value of your intellectual property before now, you might not have taken any steps to protect it. Unfortunately, the point where you recognise value is often when it’s already too late and other people are already exploiting your name, or your brand, or your ideas, and reaping all the benefits.

WHAT RISKS DO YOU FACE IF YOU DON’T PROTECT YOUR INTELLECTUAL PROPERTY?

Almost all businesses you have heard of or are looking for are either offering products or services online or marketing their business online in order to reach as broad an audience as possible. But not all businesses realise that the higher the exposure, the higher the risk of your content being copied, misused or stolen.

You do not want to put yourself in a situation where you make it too easy for someone to infringe your intellectual property or even worse, have them infringe your intellectual property without you even realising it’s happening; consider the current feud between McDonald’s and Hungry Jack’s over the ‘Big Jack’ burger.

HUNGRY JACK’S ‘BIG JACK’ TOO MCDONALD’S BY SURPRISE

Whilst McDonald’s did take action back in the 1970’s to register the trade mark ‘Big Mac’ after years of comfortably holding sway with the name, they stopped checking their core competitors’ trade mark registrations and November 2019 Hungry Jack’s dared to see if they could get the ‘Big Jack’ through.

Surprisingly, they did! Examination was expedited, and although an adverse report was initially issued the response was filed, considered and accepted within days, resulting in registration in about half the time typical for current filings. Sales were initiated in late July 2020 and McDonald’s filed a claim in the Federal Court opposing the trade mark within a month.

Regular monitoring of filings might have enabled McDonald’s to object before registration, with the opportunity to stop the application getting through, stopping the Hungry Jack’s campaign before launch, and saving the cost of having to start court proceedings.

In November 2020 the case was still ongoing and mediation had been ordered. In the meantime, the Big Jack is on menus around the country.

Apart from trade mark infringement, one of the most common complaints we see is copying of contenT… 

… usually by someone who has been involved with your business as an employee or contractor, or as a customer.

Customers tend to take your information and think they can do it better, but without the grounding you have in the history of the product or service, often fail after a short period. With millennial employees, our experience has been sheer ignorance on the part of the employee of what is expected of them, even if it was clearly written into their employment contract. With contractors and more mature employees, our experience suggests that intellectual property theft tends to be based more in what they think they can get away with and has been conducted on an assessment that you won’t take action.

So, if you are still doing nothing to protect your intellectual property, then you are exposing your business to a significant amount of risk and the potential for the high costs of enforcement as compared to prevention.

Not only could your business lose its competitive advantage in the market, but poor-quality imitations of your content can also ruin your business’s reputation.

DON’T PANIC 

This article helps you consider what intellectual property you need to protect and offer some tips on how you can do that.

WHAT IS INTELLECTUAL PROPERTY?

It is important you understand the scope of your intellectual property.

As the name suggests, intellectual property is any property or creation of your mind or intellect. Whenever you develop a new product, service, process or idea, that is considered your intellectual property and belongs to you.

From small things such as the name on your door, to bigger things like your secret recipe, or an innovative invention, these may all be your intellectual property. These are the things that differentiate your business from other businesses in the market and therefore give your business its commercial value.

Common examples of Intellectual Property for online business:

  • brand name and byline
  • logo and colour choices
  • website meta information
  • website content – visual, video, written, downloadable
  • content – planning, drafts, upgrades
  • customer lists – email, SMS, FB messenger, push notification
  • customer service – processes, scripts, emails
  • internal operating processes and procedures
  • business delivery methodology
Intellectual property can be divided into the following categories. Which category you need to seek protection under for your creation will depend on your product or service.

1. Trade Marks

Many businesses register trade marks to protect their interests. The value of your trade mark increases with the success of your business, so consider when the best time will be for you to register your trade mark.

A trade mark is a form of brand recognition that distinguishes your product or services from your competitors. It helps consumers recognise the source or quality of your products or services. It could be a word, logo, phrase, letter, number, picture, or even a smell. For example, both Google and Facebook have registered their names as trade marks to protect their exclusive rights.

You may wish to do the same and register your business name as your trade mark to prevent anyone else from using it. You could also register the name of your core product or your core service as a trade mark. Think ‘Big Jack’.

Do not confuse trade mark registration with registering a business name with the Australian Securities and Investments Commission (ASIC). Registering a business name with ASIC is your legal obligation, which would allow you to use that name to identify your business. However, it does not stop others from using the same or similar name the way a trade mark registration does.

Similarly, registering a domain name does not give you the exclusive right to use it the way a registered trade mark does, and there are limits on the way trade marks can be used in domain names and on websites.

2. COPYRIGHT

Copyright is a bundle of rights in creative work such as text, artistic work, music, computer programs or films. For example, if you draw a sketch, write a book, a journal article or a movie script, those would be protected by copyright. (Copywriting is writing of copy, usually with the objective of making someone want to buy. Two different concepts.)

As the copyright owner, you have the exclusive right to reproduce your work, decide how it will be published and distributed, and keep it from being used or modified by others. If you allow other people to use your work, you still have the right of attribution. What this means is that anyone using your work has to give you credit by for example, putting your name or photo on or next to your work. Commercial exploitation and attribution rights are separately enforceable, not linked.

Be aware that copyright does not protect what are merely ideas or concepts. Your work has to be in some material form (ie. written down or recorded in some way) to be protected. So even if you have a brilliant idea in your head for a movie, but you have not written it down as a script or storyboard, then that idea will not be protected by copyright.

3. patents

If you have an invention or innovation that you wish to protect, then you should look at patent registration. You may need a patent when you have developed a new device, substance, method or process. For example, it may be a solar panel, a new textile, or even medicine. Patent registration gives you the exclusive right to exploit your product for commercial gain.

Onyx Legal doesn’t specialise in patent registration and we can instead refer you to a patent attorney.

4. DESIGNS

Designs are like a mixture of copyright and patents, but what you are protecting is the design or appearance of your product. That may include its shape, colour, configuration, pattern or ornamentation. Sometimes, the overall visual appearance of your product may be so new and distinctive that it forms a valuable asset of your business. Examples of designs include the ball chair, the mankini, or the Tiffany box.

Design registration gives you the exclusive right to make, import, sell, hire, use or keep a product based on that design.

5. TRade secrets and confidential information

All businesses have trade secrets and confidential information. Your employee, client and supplier data are examples of your confidential information. Trade secrets might be secret formulas, practices, processes or any other information that has commercial value because it is not generally known by others. Trade secrets are also a type of intellectual property.

As the holder of trade secrets and confidential information, you need to take steps to protect that information and maintain its secrecy. For example, you can prepare confidentiality or non-disclosure agreements to help ensure that whoever you disclose trade secrets to must keep it confidential. It is also advisable to ensure you have provisions in employment agreements and contractor agreements if you have others contributing to your business. 

COCA-COLA PROTECTING ITS INTELLECTUAL PROPERTY

To give you an illustration of how important it is for businesses to protect intellectual property, let’s take the familiar brand of Coca-Cola as an example.

The Coca-Cola company owns the trade mark ‘Coca-Cola’, as well as the trade mark on the graphic designs of their name, and even the shape of their bottles. You may think that it is being overly cautious, but these are all valuable assets of its business which distinguish it from other cola brands.

Imagine what would happen if Coca-Cola’s competitors are able to use its unique bottle shape, logo, brand name or design to mislead consumers into thinking that they are the real Coca-Cola.

Of course, Coca-Cola’s formula is a trade secret. The company has high security measures to protect its secret formula and ensure that it remains completely confidential.

The success of Coca-Cola depends largely on its ability to obtain protection of its intangible creations and assets. The key takeaway here for you is, if you want your business to stay competitive in the market, it is crucial for you to consider effective protection of your intellectual property.

HOW DO YOU PROTECT YOUR INTELLECTUAL PROPERTY?

You must be prepared to spend money.

  1. Protection by registration

Patents, designs, and trade marks can be protected through registration. In Australia, registrations are made with IP Australia.

Registration offers you the most secure legal protection, with codified exclusive rights. If someone infringes your rights, you are entitled to take legal action against them.

Be aware that in design registration there is an extra step which requires your registration to be certified before you can enforce your rights.

If a dispute ever arises, it is less costly to defend a registered right than an unregistered one because your registration serves as proof of your ownership.

  1. Automatic protection

There is no system of registration for copyright in Australia.

If you are the creator of copyright work, you automatically get copyright protection in the work upon its creation (ie. as soon as it is written down or recorded). Copyright vests in the employer for works created in the course of employment. 

If you sell into the United States market, you must register digital products with the Electronic Copyright Office before you can enforce your rights in the United States.

Because there is no registration system to protect your copyright in Australia, consider placing a © symbol or label on your work to indicate that copyright belongs to you and you intend to protect it. This can act as a deterrent to potential infringers.

There is no right order. Consider including a copyright statement that looks something like this:

“© the year of first publication and your name ”

For example, “© 2020 Onyx Legal”.

Similarly, there is no system of registration for trade secrets either. You will need confidentiality agreements for people to sign so that they do not disclose your trade secrets without your permission, as well as provisions in your employment and contractor agreements.

  1. Confidentiality/ Non Disclosure Agreements (NDA)

Whenever you share trade secrets or any confidential information with your employees, contractors or business partners, you need to ensure that they don’t share it with anyone else.

The most effective way to prove their agreement to protect your intellection property is to prepare an NDA which holds the other party liable for intentionally or unintentionally disclosing any confidential information without your consent.

However, keep in mind that no contract or agreement is any protection against human misbehaviour, so whilst it will remind most people to do the right thing, it does not offer 100% protection of your intellectual property.

4. PRACTICAL MEASUREs

The more effort you put a potential copycat to, the less attractive your product or service is to being copied. Within your business, it might be cheaper to educate staff and contractors rather than taking them to court. Some practical measures you could apply are:

  • watermarks
  • PDF rather than text downloads
  • a pay wall before access
  • terms and conditions on your website and for access through pay walls
  • contracts and agreements
  • employee education and training
  • internal policies
  • an intellectual property register
  • creating a method or framework eg. Six Sigma
  • keep an eye on competitors
  • create your own enforcement process map
  • regularly search for your core product or service
  • give cease and desist or take down notices to infringers

WHAT IF YOU WANT TO LET SOMEONE USE YOUR INTELLECTUAL PROPERTY?

You may wish to grant licenses for individuals or businesses to access or use your intellectual property for either personal use or commercial use. For example, Disney grants licenses to toy makers to use Disney characters for commercial purposes. Or if you are an online educator, you may grant to your customers a license to access your online classes for personal use.

Creative Commons licencing is one option to define your licence terms for public online content, but other content is usually protected by drafting a clear and appropriate license agreements.

From an asset protection perspective, you might extablish a separate holding entity to hold your business intellectual property and licence use of it to your trading entity. 

When you license your materials to others, it is important for you to define the parameters of  use of your intellectual property, including timing and payment. 

IT IS YOUR RESPONSIBILITY TO ENFORCE YOUR INTELLECTUAL PROPERTY RIGHTS

Don’t think that by having your intellectual property registered or protected by a NDA, you can sit back and relax. That is only the first part of it. As the owner of intellectual property, you are responsible to identify infringements and enforce your rights.

What constitutes an infringement varies depending on the circumstances.

Whenever you are not sure about grounds to allege an infringement, then you should always be cautious and get legal advice before sending out any correspondence to the offending party. It the action in question does not constitute an infringement, your accusation may be considered as a groundless or unjustified threat. If that is the case, then the other party might be in a position to bring a claim against you.

Want more information?

A good understanding of the scope and value of your intellectual property can help you decide what steps to take to protect it, and improve the long term value of your business.

Make an appointment with us at Onyx Legal to discuss appropriate strategies for the protection of your intellectual property. 

AU$ Trademark Fees Have Changed

AU$ Trademark Fees Have Changed

AU$ Trademark Fees Have Changed

IP Australia Fees for Applying to Register a Trade Mark? 

A few quick things you should know before making an application for a trade mark:

  • Registration has local affect (Australia) only, unless you specifically make and pay for an international application
  • The cost of international applications vary depending upon the countries you want to cover
  • Generic or commonly used words and phrases are unlikely to achieve registration
  • The assessment process takes six to twelve months and, if successful, is backdated to the date of your application
  • There are 45 classes of registration and each class attracts a fee

Until October 2016 you had to pay both an application fee when you lodged your application and a registration fee six to twelve months later once it was accepted.

For applications made after 10 October 2016, you pay a higher application fee, but no additional registration fee, so overall its cheaper! Just a bigger up front cost than previously.

In 2020 your IP Australia standard trade mark application fees are either:

– $250 per mark applied for, per class applied for if you use IP Australia pre-set descriptions, or

– $400 per mark, per class if you use your own unique descriptions 

Example: You have one brand name you want to register for printed material, clothing and the delivery of entertainment online. That covers at least three separate classes. If you use pre-set descriptions from IP Australia, your fee to IP Australia for that one brand will be $750. If you use your own descriptions, your fee will be $1200. Your legal fees are separate. 

As soon as you use a unique description in one class, the unique descriptor fee applies across each class, unless you make separate applications for other classes. 

If you’re not sure whether you are ready, or even need to register a trade mark at this stage, check out our guest article in ProBlogger “How (and When) to Register a Trademark Without Hiccups” where we take you through a 5 step process –

Step 1: Is your brand capable of trade mark protection?
Step 2: Does your brand have value?
Step 3: Is there anyone else out there using your brand, or likely to?
Step 4: Is there any other form of protection in place?
Step 5: Is now the right time?

How can Onyx Legal help you?

We can help you apply for trade mark registration in Australia, object to someone else’s application, respond to an objection, or respond to an adverse examination report.

To get started, we will need from you – your trade mark, any image marks you wish to register and a description of the products or services you wish to have covered by the mark. Your description can include products and services you expect to develop during the next three years.