It is very easy for a corporation or an individual to register a new corporate entity. Many people find it helpful to create organizations specifically for holding intellectual property rights. These companies can be in any form, whether it’s a limited liability corporation, C-corporation, or S-corporation. There are many advantages, and some disadvantages to creating an IP holding company. It is prudent to review all of the details before asking a lawyer to create an entity for you.
Typically IP holding companies are created in states or foreign countries which have more favorable tax laws regarding intellectual properties. Corporate entities with limited liability will also shield an inventor or owner of intellectual property from any losses which may occur from these properties. Additionally, the intellectual property will be immune from suit regarding any licensing issues if the licenses are issued to or from the IP holding company.
Of course there are drawbacks from operating an IP holding company. Many jurisdictions, especially New York, are applying more scrutiny to IP holding companies in order to capture more tax revenue. Licenses can go awry as well. Typically a holding company will grant a non-exclusive license to its parent or sister company to use the intellectual property. However, if the IP holding company grants non-exclusive licenses to a parent or sister company, the Federal Circuit ruled that parent or sister company may lack standing to sue for infringement (see Poly-America, L.P. v. GSE Lining Technology, Inc., 383 F.3d 1303 (Fed. Cir. 2004). Trademark issues can also arise if someone questions the quality control or goodwill of the mark.
An IP holding company may not be the proper solution for everyone. It is critical to consult an attorney with the proper knowledge of both intellectual property and business law on the matter. If you or your company is considering whether to create an IP holding company, you can contact Stone Law at 732-444-6303 or leave us a message on our website.