Local food and beverage businesses are works of passion. Few start out making artisanal breads, small batch cheeses, or craft wines in an effort to get rich. Of course you want to make a profit—but at the core, you do it because it makes you happy. And because there are people like me, whose quality of life is vastly improved simply by enjoying your breads, your cheeses, your wines (or juices, or chocolates, or olive oils, or heirloom tomatoes, you get the idea…). If you have created a work of passion, you have created something worth protecting. Here are some basic questions that, although relevant to all business owners, may be particularly important for you to consider.
1. What happens if you (or another owner) die?
This is the hardest question for most business owners to answer—but if you want your business to continue in the event of an unexpected death, it’s also the most important. So let’s break it down a bit further. The first part “simply” involves thinking through what you want to see happen. Do you know who you would like to have take over if something happens to you? Will it be your children? One child in particular? A key employee? Have you talked with them about your decision? Assuming they want the business, can they afford to buy out your share? If not, is there life insurance or another mechanism in place to provide the needed funds? And then, are your desires properly reflected in your business succession and estate plans? (If not, state law will likely dictate how your business gets distributed.) If estate taxes are an issue, will your heirs be able to pay the taxes without liquidating the business?
Action Item: Start easy. Just get the discussion going.
2. Are your recipes protected?
You spend a lot of time researching and developing your recipes and techniques. Do you have a key employee—or maybe a spouse—who helps create your product? Do they know your secrets? What happens if they leave, or your spouse divorces you? (It has been known to happen.) If they go work for your major competitor, or set up their own shop down the street, you probably want to make sure that they aren’t sharing or profiting from your recipes and other trademark secrets. Look at their employment contract. Does it include a confidentiality clause? Does it clarify what you consider to be trade secrets? If you’re in Washington State, you can also include a non-compete clause—so long as it’s reasonable.
Action item: Review your employment contracts. Even better, supplement the contract with an employee handbook that clarifies expectations for everyone.
3. Is your name protected?
This is another issue that is often overlooked. Your business and product names are a huge part of your identity—you likely put an immense amount of time and energy into picking them, creating logos around them, designing (and printing) labels, and developing name recognition among your buyers. If you use a business or product name that is different from your entity name, you should register each of those names as trade names (commonly known as “doing business as” or DBA names) with the state. For added protection, you may also want to apply for federal trademark protection. It’s not expensive to file an application, and there is a lot of good do-it-yourself guidance available. This is a good place to start.
Action item: Register any names that are important to your business with the state. Weigh the pros and cons of added trademark protection.
4. Are you relying on handshakes?
Handshake deals may be one of the fastest ways to the courtroom. Sure, relations are good now, but it is amazing how quickly things can turn bad. And by bad, I mean really bad. Even if the relationship never sours, what happens if the person you have that handshake deal with dies? Will his successor be as easy to deal with? How will you demonstrate to that new person—or the courts—that the deal even exists? There is simply no (good) reason not to put your agreements in writing. This is one area where something is almost always better than nothing.
Action item: Make a list of the people and companies with whom you have (or think you have) agreements. If you don’t have a signed document reflecting that agreement, get one.
Engineers are paid inventors and nearly all employers include a clause granting ownership of any patents developed by the engineer and/or employer to the employer. One I was asked to sign included all patents developed by me from my birth to death to that employer. I didn’t stay with them and they are now out of business.
In full disclosure everyone, this comment is from my father (hi dad!).
Yes, whether an employer or employee rightfully owns an invention (or intellectual property, etc.) should be dictated by an employment agreement – ideally one that is thoughtfully prepared and appropriate to the circumstance. Whether the rights should belong to the employer, though, depends on factors such as whether the employee was hired specifically for the purpose of creating the invention, whether the employee was using the employers resources to create the invention, and whether the invention was developed during the course of the employee’s job duties.
In other words, if an employee was doing what they were hired to do, then the resulting invention, etc., likely belongs to the employer.