Almost every merger or acquisition (M&A) transaction raises intellectual property (IP) issues. In many cases, the target company’s intellectual property portfolio is the most valuable element of the business and the part that will truly help your company expand. However, even where intellectual property is not at the heart of the transaction, it is essential to conduct the proper due diligence.
In this article, we look at the importance of identifying a target’s intellectual property assets, determining their value, and assessing any difficulties you may encounter further down the line. For expert advice and assistance, contact our team today by calling 0330 107 0107.
Over the years, technology and in turn, intellectual property has become more important and more valuable for businesses. As a result, the due diligence process in relation to intellectual property has become more extensive and often a focal point of M&A transactions.
Due diligence in relation to intellectual property is the process of analysing the target company’s portfolio, taking care to assess benefits, value, and risks involved in relation to the M&A transaction. When undertaking due diligence, the acquiring company is looking to determine whether the target’s intellectual property portfolio is a good fit for its short term and long-term business goals and whether they will leave themselves vulnerable to risk.
The structure of the transaction has a huge impact on intellectual property due diligence because the type of documents that may need to be prepared or available will differ depending on how the transaction is structured. Whether the acquisition of the target company is by asset purchase, share purchase or merger, will have an impact on the assignment of intellectual property rights.
If the transaction is as an asset purchase, you will require assignment agreements that transfer ownership of the intellectual property rights and you must ensure all of the intellectual property is included in the transaction.
In certain merger transactions you may also require the intellectual property title to be assigned.
It may seem obvious, but it is vital to ensure that the target company has properly registered, maintained, and owns their intellectual property. As part of the due diligence process, your lawyer will check all registered trademarks, copyrights, and patents allegedly belonging to the target company for any defects. For example, when a company has changed hands several times, it is possible that all of the intellectual property rights have not been properly assigned or that ownership lies with another party. Intellectual property rights may also lie with a subsidiary company, and not the target company itself, which could cause difficulties at a later stage.
The value of intellectual property can be incredibly difficult to quantify, and can play a pivotal role in M&A transaction negotiations. There are many factors which can affect the value of intellectual property, including; to what extent the business has exclusivity in the marketplace, the lifespan of intellectual property rights, maintenance and enforcement of intellectual property rights. Each of these elements will need to be examined to determine the value of the target’s IP portfolio.
Much of the due diligence process is about assessing risk, and intellectual property is no different. You need to understand the potential risk of claims from competitors, former employees, subsidiary companies and others if you choose to acquire and use the target company’s intellectual property. Common issues we see are challenges over exclusive ownership and infringement claims.
Intellectual property is a complex area of the law. However, our cross-specialist team can advise you fully and will conduct the due diligence process with the utmost attentiveness and care. To discuss your transaction with our team, get in touch today.
Our lawyers specialise in transactional work and in getting the deal done whatever it takes — provided this is in your interests. When problems arise, we find ways to overcome them and when the pressure is on to conclude a matter quickly we have the capacity to upscale resources so that any deadlines can be met. We are responsive, commercially focused and committed to helping you achieve your objectives, whether your involvement in a proposed arrangement is as a seller, a buyer, an investor or even a commercial lender. For more information, please contact Olexandr Kyrychenko on 0330 107 0107 or email us at business@imd.co.uk.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
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