Intellectual Property Issues In Mergers And Acquisitions – TTC
Intellectual property (IP) is one of the important assets which results in determining the value of an organization and plays an important role in estimating the price for the Merger and Acquisition deal. It is vital to know the information of all the Intellectual property assets before confirming the agreements for merger and acquisition.
An organization expands its empire through merging with other organizations or acquisition of stakes from other organizations. While doing so, the acquiring organization’s IP portfolio also expands significantly. When merging or acquisition occurs between two organizations, it is important to gain knowledge of the IP assets of the merging organization or the organization being acquired. IP assets can vary from patents to trademarks to copyrights etc. An acquirer or merging company must have experienced IP counsel and must perform due diligence on the acquiring company’s patents, copyrights, licenses trademarks, and other IP assets.
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Intellectual Property Issues in Mergers and Acquisitions
As an acquisition occurs, it is vital to transfer all the IP assets rights to the respective organization (acquirer), and all the IP assets to be transferred need to be clearly enlisted in the acquisition agreement. As the acquiring organization will be henceforth responsible for maintaining the IP assets, it is crucial that the assets are clearly documented. Often issue arises when the documentation is not clear as the IP assets are intangible in nature. The documentation is not limited but may include:
- Patents including granted and applications.
- Non-disclosure agreements with employees/others.
- Trade secrets and Trademarks
- Licenses taken or provided.
- Any sought of IP litigation and many more.
Depending on the number of IP assets an organization owns, the complexity of the IP rights transfer increases. The issues regarding the IP assets should be clearly addressed at the beginning of the merger & acquisition deal (M&A) to avoid losing the value of the respective assets which will gradually be accompanied by the financial loss associated with those IP assets.
For instance, if a patent is being assigned from one organization to another, it is important to know its litigation status or the possibility of potential infringement suits, its licensing status to truly understand the value of the patent, the ownership transfer of the patent inventors (employees / ex-employees) to the organization (E.g.: through specific Non-Disclosure Agreements etc).
The acquirer must also check if the acquiring company uses any open-source software in any of its products or solution as it can become a deal killer. The acquirer must ensure warranties from the company that it has neither used any open-source software nor has any sought of infringement or violation of any open-source licensing agreements.
Similarly, when a trademark is being transferred from one organization to another, it is imminent to understand the brand image of the acquired organization as trademarks are the direct association between a product (indirectly the organization) and the customer. If the trademark is not properly maintained, the customer may not be retained with the brand/product & hence with the organization.
Lastly, the acquirer needs to confirm if the acquiring company maintains and follows all rules and regulations, practices, policies, and privacy issues.
The seller company must also take some precautionary measures on some parameters to make a good acquisition deal. The parameters may play an important role after the closing of the acquisition deal where the seller will not make any representation of ownership of IP specially when the following cases arise:
- Any sought of claim by third party that acquired patents are invalid.
- Any sought of claim by third party that acquired IP infringes some patents.
- Any sought of Open-source issues.
- Improper documentation registration with the associated Government body.
As merging and acquisition by organizations are inevitable, practices must be followed to minimize the issues and challenges of the IP assets being transferred. A strategic understanding of the value of IP assets helps in expanding the organization’s portfolio.
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