Due diligence issues on selling a business with an IP asset base

Anyone acquiring or investing in a business will want to know what intellectual property (IP) is included in the target’s assets and to what extent this is the engine for generating revenue. A business which is being prepared for sale should make sure that it will have ready answers to the enquiries which the purchaser’s lawyer will make.

The first step is to identify the IP rights which exist. These could include registered and/or unregistered rights. Patents are registered rights. Certain rights, such as copyright, are not capable of registration in the UK. Other rights such as trademarks and design rights can exist in both registered and unregistered form.

Searching and verifying ownership of registered rights

To develop an effective IP due diligence strategy it is important to first understand what IP assets are most significant to the business and any future deal, any key markets and what products (if any) are in the pipeline.

It is important to ensure proper chain of title for each right and whether there are any joint ownership issues which could complicate post-completion matters. Does any other party have a right to the IP or are any rights subject to a commercial co-existence agreement?

It is very common for a business to use third party sub-contractors or freelancers to create software or artwork. It is essential that the contractual chain can be established so that appropriate warranties can be given that the business is the owner when the time comes.

These are some of the things a business can do to prepare:

.    Obtain and review copies of all agreements related to IP and technology to check the terms thoroughly and in particular, if any third party to IP is integral to the business consider if any agreements contain restrictive assignment terms or ‘change of control’ provisions.
.    Consider writing an intellectual property policy to set out guidelines which address:
.    New work, inventions and other developments which should be routinely assessed at predetermined milestones.
.    When to include lawyers and patent attorneys to register rights.
.    The approach to third party infringements or potential threats to IP.

If a business takes these steps at a time before it is under intense pressure in relation to achieving a sale or investment it can maximise the value of IP and have an impact on the price which can be achieved.

For further information please contact Kim Walker, Partner, Thomas Eggar, Southampton Office.

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