A community interest company (CIC) is a type of limited company which exists to benefit the community rather than private shareholders. It’s a model designed for social enterprises that wish to use assets and profits for a public good.
If a CIC and a limited company have shared values and ethos, but carry out different activities, can they co-exist under the same branding? Grid Law founder David Walker explains how joint ownership of intellectual property works in the context of a CIC and a private limited company.
Question
I have read with interest David’s article “Intellectual Property Ownership: Who should own what you create?” and have a question about IP ownership and licensing.
How do licensing and ownership work best when a private limited company and a Community Interest Company (CIC), with the same brand, work alongside each other?
Answer
Thanks for your question.
I have carried out a trademark search of your brand and it doesn’t appear to be registered.
This means that both the limited company and the community interest company (CIC) are using it as an unregistered trademark.
Unregistered trademarks have very little protection. All they really have is the strength of their reputations (their “goodwill”) which builds over time, the more the brand is used. In the early days of a business, their goodwill can be very fragile and is easily lost.
The CIC and the limited company have shared values and ethos, but they carry out different activities. As they use the brand for these different activities they are building up their own reputations and goodwill in relation to it.
In effect, they are creating their own separate (but identical looking) brands.
As they each own their own rights to the brand, there’s no need for a licence between them. They can both use them freely without consulting the other so long as they don’t cause any confusion for their customers.
Whilst this may seem attractive from an administrative perspective, using two unregistered trademarks in this way does have its risks and disadvantages.
Risk of infringement
As unregistered trademarks, neither brand is fully protected and they’re both at risk of being infringed and copied.
When an unregistered trademark is infringed or copied, its owner has to take legal action for passing off. This is far more difficult, time-consuming and expensive to pursue than a claim for infringement of a registered trademark and the outcome is far less certain.
To successfully pursue a claim for passing off, the brand must have a strong reputation. As the owner, you must then prove that your customers were confused about who they bought products or services from.
If you can’t prove confusion, there’s no claim and nothing you can do to stop the infringer.
When you have a registered trademark and someone copies your brand, you don’t have to prove this confusion. This makes a claim for trademark infringement much quicker, easier and cheaper to pursue.
For this reason alone, I strongly recommend you protect the brand by registering it as a trademark or series of trademarks.
As well as giving the brand far more protection, a trademark is an asset in its own right. With the limited company and CIC working alongside each other, this gives you various options for ownership of the brand (which I will explain below).
Registering a trademark
Registering a trademark is relatively straight forward, but you have two tasks to complete before making your application.
Trademarks are registered in one or more of forty-five different classes depending on the products and services they are used for.
Your first task is to look carefully at what both the limited company and CIC do. If they are carrying out different activities, these activities may well fall into separate classes.
If they do, this will influence your second task, which is to decide which entity will own the trademarks you register.
You have three options:
- The limited company and CIC could jointly own the trademarks;
- The limited company and CIC could each register their own trademarks; and
- Either the limited company or the CIC could own the whole brand and grant a licence of the trademarks to the other.
As a general rule, I advise against joint ownership of intellectual property because joint ownership requires joint decision making. Joint decision making can be problematic if the two owners have different objectives, as in your case.
Even though the two entities have shared values, their objectives are different. The main objective of the limited company is to generate profits for its shareholders. The main objective of the CIC is to use its income, assets (which would include the trademarks) and profits for the benefit of the community it is formed to serve.
In achieving these aims, the CIC is likely to be more risk-averse than the limited company and this will affect the decisions it makes.
So, let’s rule out option one and look at the other two.
Option two, each entity owning its own trademark(s), could be attractive if the trademarks can be registered in different classes. There would be a clear distinction between them and the limited company and CIC could each make their own decisions regarding the actions they take to protect them.
If there are common activities between the limited company and the CIC, if the activities they carry out fall within the same classes, or if you simply decide the brand should be kept as a whole and not split, you will have to choose option three.
If you choose option three, you must then decide which entity will own the trademarks.
Before advising you on this, I would need to understand in much more detail how they each plan to use them. However, I suspect ownership by the limited company is going to be preferable.
A fundamental characteristic of a CIC is that it is “asset locked”. This means it cannot transfer any of its assets to the limited company for less than their market value. Arguably then, the CIC would have to charge the limited company full market value for a licence to use the brand.
This is likely to be unattractive for the limited company because it will reduce its profits.
Also, if the trademarks are infringed, primary responsibility for taking legal action to protect them would rest with the CIC. Legal action is always risky so it may not be the best use the CIC’s money to pursue infringers in a borderline case.
Licensing
If the limited company owns the trademarks, it could grant the CIC a licence to use them on any terms it wishes. It can even grant a royalty-free licence so there is no cost to the CIC and the CIC will then have more money available for good causes.
The limited company can also take a more aggressive stance against infringers so the brand is likely to be in safer hands.
As you can see, deciding how best to deal with ownership of the brand is not straight forward. It’s also not a choice you can really make until you have looked in detail at the classification of the trademarks.
I hope this has given you a good starting point to think about ownership and protection of your brand. If you need any further advice, please feel to email me again at editors@businessadvice.co.uk.
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