October 2, 2020 | Written By Elana Bertram, Partner
Sometimes clients, and even other attorneys, are surprised when I share that I’m an intellectual property (“IP”) attorney whose clients range from nonprofit entities to venture-backed startups. The stereotype is that these are polar opposites, one driven by a charitable intent and the other by cutthroat profit motive. To me, however, the skills required to run a successful business are essentially the same. Just because nonprofits have a preferred tax status and can accept donations doesn’t mean they can avoid the critical principle of bringing in more money than they spend! Good governance, established early and enforced clearly, will keep any business running smoothly and free up the managers to focus on delivering the most value to the customer, however it is funded. Likewise, both donation-funded and venture-backed organizations create a distinct value proposition to persuade supporters to part with hard-earned money for an opportunity to gain a desired result.
A startup looking to get angel or VC investment to help them launch a new product or service needs to have both its corporate structure and its intellectual property assets properly managed in order to earn the trust of potential investors during the due diligence process. Good corporate governance helps protect all founders, investors, and ultimately customers from confusion and malfeasance. Likewise, an experienced investor will not invest in a company that doesn’t understand how to protect its place in a competitive market; perhaps their idea is “first” or “best” today, but over time copycats and competitors will target their customers and a solid IP portfolio including patents (if applicable), trademarks, copyrights, and trade secrets will give investors confidence that when the competition gets fierce, they have a fighting chance.
Trademarks as source-identifiers are crucial for nonprofits, too! Brand recognition and reputation is the first thing many potential donors rely on to determine if they trust an organization to do what they say they’re doing. For any nonprofit leveraging social media to raise funds, trademark protection is vital. When a negative event like a natural disaster or mass casualty happens suddenly, there are often many well-meaning people trying to help, often using similar names. Establishing a strong reputation of doing good work in your field only goes so far if donors can’t find you in a sea of similarly-named charities. Brand strategy can help donors find you and help other charities differentiate their projects from yours, avoiding competition and doing more good in the community.
One way nonprofits leverage trademarks is to join with larger, more well-known charities to co-promote events. This can range from formal fiscal sponsorship to one-off co-promotion of events, or even a formal merger if the boards of directors decide to combine forces rather than compete for donors. These agreements need to include which parties are allowed to use which names and when, and also be clear about how any money raised is shared.
Notably, many nonprofit entities create and market intellectual property – if your mission includes teaching or training, establishing new policies as a consultant, supporting creative charitable purposes, or generating materials you share with either donors or customers (whether you charge for them, or not), a core product of your endeavor is intellectual property. This is important for several reasons:
First and most simply, if you’re charging to provide content or services, you have a financial interest in preventing copying without being compensated. So long as the services are related to the charitable purpose of the organization, it’s considered related business income by the IRS. In fact, a 2015 Urban Institute study found nearly 50% of all public charity income was from paid services, not donations. Even if you don’t sell “for a profit,” you are permitted and even encouraged to cover the costs of production, including paying market rates for professional services as well as employees.
Second, even if you prefer to let the content you generate circulate freely, attribution to your nonprofit as the source can help donors and future partners and clients find you.
Third, in the event you work with multiple authors, artists, employees, independent contractors, and/or clients, having a solid understanding and clear agreements of who owns which parts (if any) of jointly-created content avoids expensive and painful confusion later.
Last, being upfront with your clients and partners about what your organization may do with their likenesses and work product is the law. In this way, your nonprofit is managing the intellectual property of others in a respectful and legal manner. Organizations that work with children, in particular, need to focus on how they promote the good work they’re doing with images and personally-identifiable information.
In closing, no matter your revenue, tax status, or goals, if your business needs to be “known,” you need to know about trademarks. Further, you may have intellectual property assets integrated in many parts of your entity, and investing in protect and assert those rights can maximize revenue and increase your impact.
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