It is great fun brainstorming a new idea, be it over a couple of beers in the pub, over lunch or on the golf course. Quickly thoughts are jotted down, a seed it sown and off we go – a new business is born!
Sorry chaps, but the idea is only 1% (if that) of the end product. When we start a new business concept, we need to take one step back, decide why we are doing it, what the long-term objective is and how we are going to get there. I like to refer to it as a jigsaw and for a jigsaw to be complete, all the pieces must be there – if one piece is missing, however small, the product is incomplete.
The ultimate aim for any businesses should be to build a brand, which you can sell in due course. The brand includes inter alia your business name, trademarks (name, buy-line, get-up), copyright, domain name (These collectively constitute your intellectual property) and business contracts (which should always be recorded in writing and signed by BOTH parties).
Success starts on day one and a solid foundation is required. So, before you rush off to the advertising agency and the printer with the nice name and logo you and your mates have conjured up, read on.
Firstly, keep the idea to yourself! An idea cannot be patented and is not protected (as such) by copyright and, any protection you may have had will be eroded by verbalising the concept to all and sundry. This includes not only the detail of your concept but also the name and logo.
Secondly, you, your mates (Yes, your friends too!) and anyone you deal with must sign a Confidentiality and Non-Disclosure Agreement (CNDA). This will protect not only the concept, but also all the time, effort and money you are going to put into your venture trying to get it off the ground. Bear one thing in mind: Money changes people! Most people like doing business with friends: make sure you separate your friendship and your business relationship – that way both will stay intact.
Thirdly, decide what kind of entity you want to house this new venture in and, where required, register it. You can choose to be a sole trader, a partnership (a joint venture is essentially the same thing), a trading trust, a close corporation or a company. We will discuss the detail and pros/cons of each format in a later article, but for now it is important to note that:
• The latter three need to be registered (see below);
• It is imperative that you have a (written and signed!) consensual agreement that will govern the relationship between the parties, i.e. a partnership agreement, a trust deed, an association agreement (for c.c.) or a shareholders agreement (company);
• You must not work on trust alone – it is one of the quickest ways of destroying a good idea and/or a friendship.
REGISTRATION OF THE ENTITY is imperative and involves a few anomalies:
• The offices of the close corporation registrar (‘the CC Registrar’), company registrar (‘the CO Registrar’) and the trademark registrar (‘the TM Registrar’) do not ‘talk each other’ and, believe it or not, they and the data bases are not linked electronically!;
• It means that when you apply for the registration of either of the three i.e. a close corporation, company or trademark, the other two offices are ‘not aware’ of your application and ‘conflicting’ applications could therefore be approved independently e.g. a close corporation application could be approved when it clearly ‘clashes’ with a registered trademark or company name (and vice versa)! If you (or your lawyer) don’t read the Government Gazette when the trademark or close corporation or company application is advertised and object within the period allowed, you’ve ‘missed the boat’ and either party will ‘have to live with’ the conflict (or attempt to change it at great expense);
• It is therefore required and imperative that when you register a close corporation, you also do a search in the companies and trademark’s office and vice versa;
• and, whichever of the two you ultimately choose as your ‘vehicle’, you must also register a defensive name in the office in which you do not register e.g. if you register a close corporation, you must register a defensive name in the companies office to avoid another party registering a company with the same or similar name as your close corporation;
• and you must also register a trademark and via CPA (see below).
Fourthly, during all this time, you must protect your intellectual property i.e. copyright, trademark(s) and domain name and not forgetting your invention. This you do by:
• Reduce to writing your concept or idea or logo: protection only arises when the idea or concept is reduced to material form.
• Agree in who the copyright will vest: you, all of you or the entity to be formed.
• ‘Warn’ outsiders thereof: at end of the written document and at the bottom of each page insert ‘© …………………[name copyright holder] and the date and, where it is a more extensive and permanent document, appropriate and more detailed wording regarding copying, use etc is required.
• When you rush off to the advertising agency (after you have done the necessary regarding your trademark and entity registration – see below), make sure they sign an agreement that the copyright in your nice new name, logo, buy-line, sketch, drawing, film, video or computer production and programme vests in and remains vested in you/your entity (‘Copyright Ownership Agreement’) – if you do not do that, the copyright may well be theirs! The latter is especially true in the case of video, film and computer productions.
• Note that you cannot obtain copyright in an idea.
• The Copyright Act does however protect computer software (which cannot be patented), but the protection is limited, easy to circumvent, difficult to prove e.g. only where there has been a ‘direct copy of the source code’ or if ‘there has been a direct adaptation of the source code’ and not if the party has merely ‘copied the concept underlying the computer program’ [Business Day Law Review August 10 2004 – Tarryn Dixon].
A trademark is anything that distinguishes your product or service. It could be a name, a word, a logo or shape, etc provided it is distinctive and is capable of visual presentation.
• You identify and warn other parties about your trademark by using the letters ‘TM’ initially and, once the trademark is registered, the letter ‘®’ – Note that it is illegal to use the latter until the trademark is in fact registered.
• It is imperative that you conduct a search in the office of the TM Registrar before you embark on registration: The reason for that is twofold – (a) it will give you an indication of whether you can go ahead with registration and use or not or how you may have to adapt your trademark (b) It is cheaper (by about 60%) than simply going ahead with an application and then being told by the TM Registrar that you ‘cannot have it’.
• Once registered, your trademark is protected for ten years and can thereafter be renewed for a nominal amount for ten years every ten years indefinitely.
• Note that you do not have to register a trademark to have protection – use of a word, a name, logo, etc. will result in such name, logo, etc. acquiring distinctiveness and therefore common law rights. You may also use the letters ‘TM’ with such a name, logo, etc.
• However the benefits of a registered trademark are inter alia ease of proof (i.e. simply produce trademark certificate), enhancing the value of your brand upon sale of business and ten years’ statutory protection.
The purpose of a domain name is to identify your website. Note that a domain name is not a trademark, although court decisions may ‘narrow the divide’ in due course.
If you are doing business internationally, it is recommended that you register ‘.co.za’ or ‘.net’ as well as ‘.com.’Dispute resolution as an alternative to litigation can be conducted locally via The South African Institute for Intellectual Property Law for .co.za at www.domaindisputes.co.za. There is also provision for arbitration via WIPO (World Intellectual Property Organization) in terms of its Uniform Dispute Resolution Policy (‘UDRP’) for .com disputes.
Domain name registration is imperative and goes hand in hand with trademark and entity registration.
Lastly, if your business is not ‘housed’ in one of the above and you do not have a registered trademark, but you have used your business name for some time (and it has thus acquired a degree of distinctiveness) and a conflicting business name comes to your attention, you can apply in terms of the Business Names Act to the Company Registrar (via CIPRO) to instruct the other party to change its name if it is:
• calculated to deceive or mislead the public; or
• calculated to cause annoyance to any person or class of persons;
• suggestive of blasphemy or indecency.
As you can imagine, the first ground would be the more regular basis of objection, but proof is by no means easy or cheap, hence the suggestion that you register a trademark.
The above has now been replaced by section 79, 80 and 81 (Read with Regulation 39) of the Consumer Protection Act, Act 68 of 2008 (‘the CPA) i.e. you may only trade using a name that meets on one of the following requirements:
• Individual: It must be that persons ‘full name as recorder in an identity document’;
• Juristic person: registered ‘in terms of public regulation’;
• Registered in terms of section 80 of the CPA.
Section 80 determines that such person may register:
• ‘any number of business names being used, or to be used, by that person in carrying on the person’s business;
• the same business name translated into any number of official languages of the Republic’.
Section 81 determines that a business name must not:
• Be the same or confusingly similar a company, close corporation or name under the Co-operatives Act or a registered or well known trade mark;
• Falsely imply or suggest or be such as to imply an association with another person or entity and/or educational designation.