Intellectual Property in Acquisitions

With the expansion of the connected world and the Internet of things, recent trends in the due diligence phase of acquisitions show an increased focus on intellectual property rights (IPRs). Sellers are recognising that IPRs (Intellectual Property Rights) can add significant value to a company and in some cases, they can be the main asset a buyer is interested in acquiring.

All companies will use or create some form of IPRs. Some will be unregistered, such as copyright or unregistered trademarks and some will be registered such as registered trademarks or patents.

As part of preparing a company for sale, sellers need to be aware of what IPRs are important to the company and its business; and they need to decide whether registering any IPRs will add any value.

Take for example a trademark (whether a logo or word mark) registered in the EU. Setting any Brexit considerations aside, a trademark registered in the EU will give the owner a monopoly right to use that trademark in respect of the goods/services covered by the trademark in the 28 Member States which comprise the EU. An unregistered trade mark will of course offer no such protection and therefore if the trademark is very valuable, having it registered in key jurisdictions is likely to add significant value to a seller’s business.

Sellers will need to carefully analyse which IPRs their company actually owns. It is not uncommon for companies to outsource the creation of distinctive logos or designs to third party marketing agencies or external consultants. While these agencies or consultants ordinarily assign the full benefit and ownership of any IPRs back to the company, this is not always the case.

We have been involved in a number of share sales where the due diligence undertaken by the buyer has found that valuable IPRs used by a company are not in fact owned by it. When seeking an assignment of those IPRs, the external consultants have demanded large sums of money essentially holding the IPRs to ransom.

Sellers also need to be aware of the distinction between those IPRs which are actually owned by the company and those which it uses under some form of intellectual property licence. There will be certain key questions a buyer will ask in relation to any IPR licence including:

Grant – Does the licence permit the company to use the rights itself and grant licences to others parties? In intellectual property licences, the terms “exclusive”, “sole” and “non-exclusive” have generally accepted meanings:

  • an exclusive licence allows use by the licensee only; the licensed IPR is not able to be used by the licensor and the licensor will not be allowed to licence the IPRs to  third parties.
  • a sole licence allows use by both the licensor and the licensee however the licensor is not allowed to licence the IPRs to third parties.
  • a non-exclusive licence allows the licensor to use the licensed IPR and to grant licences to third parties.

Territory – What is the geographical scope of the licence?

Term – How long will the licence last? Are there any post-termination restrictions?

Termination – Is the licensee protected against early termination? Is the licensor entitled to terminate on a change of control of the licensee (so that the licence will terminate as a result of completion of a seller selling his shares in the company)?

The value of any IPR used or owned by a company will only be determined after a thorough review of the company’s business. Sellers will need to try and determine which IPRs are essential for the company’s business to continue and grow post-acquisition. Such an exercise should be undertaken before any sale is on the horizon, as part of a seller’s exit strategy.

Companies are now recognising that value exists in not only tangible assets but in intangibles such as patents, trademarks, domain names and even confidential information. While IPRs may be more important in some transactions than others, their potential value and importance should never be overlooked.

 

More guidance on protecting your company’s Intellectual Property, contact Maung Aye at Mackrell Turner Garrett via their website or by calling 020 7240 0521

 

 

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