Meeting IP Issues While Going for M&A Deal

Intellectual Property has always played an increasingly significant role in today’s technology-driven industry. IP is an important asset for an organization. Hence, the innovative strength of an organization subsequently can be measured through its IP activities. Not only with the number of the IP, but the quality of the IP is what makes the corporation more demanding. The development and acquiring of IP is a costly affair and even time-consuming. Hence, it is always advised to have a strategic approach towards IP development. Being a most significant part of the technology sector businesses, they are also of crucial importance in the merger and acquisition deals. Having several key issues in such transactions, it is important to address all such transactional ‘IP Due Diligence’ issues. Some of the key issues while going in the M & A deals can be:

^{[Image Source: gettyimages]}

Ownership of IP

This constitutes the primary important factor while dealing in the pre-transaction IP deals. This ownership must be coupled with the identification of IP in the business. The parties must be clear with the IP assets in the company which generally are registered patents, trademark and copyright, and also software, trade secret, and technology licenses. Now every IP to be inculcated in the deal must come up with the assessment of what IP is owned by the target company. So the relevant IP must be identified to evaluate the market value and any such infringement. After identifying, it is important to ascertain the ownership of IP. For such an activity, it is advisable that the company must also search the database of different available IP offices, to remove any such iota of doubt. Multiple ownership issues often arise in case there is multiple division of the business. Issues where the technologies are shared among different business units are also an important factor that needs settlement before going into the M&A deals.

Employee Rights

In such ownership, an important factor that arises is the development of IP by any agent or contractor, since these ownership issues must be resolved. In maximum cases, either the business retains the right of the IP developed or in case there are any express agreements. Like for example, the work for hire doctrine in the copyright can vest title in the employer, if the work being developed by the employee was within the course of employment. To not create any such issues, it is highly advisable to obtain IP assignments for all employees. Such practice helps to be clear with the employee-employer relationship and does not provide any dispute that might arise later. Also, the term of agent and contractor must be reviewed to assess the right bestowed upon them.

Licensed and Liens

Multiple factors play with IP as a part of it is an asset for a company. It is common that IPs are used as collateral in debt financing. Such liens must effectively be scrutinized by the parties. Such issues might become very complex; hence it is advised that such issues must be scrutinized.  In dealing with this, there are chances that the IP asset may still be subject to third-party rights according to the license being granted. Also, there might be IPs that are used as per the license but are not owned. Key issues often addressed in IP licenses include duration, royalties, and fees, the scope of use, exclusivity, territorial limits, sub-license rights, rights to enhancements and improvements, etc. A major issue is also with the assignment of the IP. Generally in contracts, with the absence of express restriction, it is assumed that the contracts can be assigned. Nevertheless, IP rights are most strict in the sense that they cannot be assigned unless an express approval of the IP owner. In such M&A, it is advised that the parties must assess such licensing term.

IP validity and Infringement

A very important factor is to assess the infringement that an IP must have done in due course. The target IP needs might infringe any third-party IP, assessment of which must be considered during the pre-transaction deal. Steps must be taken for analyzing the merit of such a case. Also, there are chances that the IP has been validly issued must also be considered. There are chances that the IP validity might be questioned due to reasons such as non-consideration of the prior art, which might greatly affect the validity of IP.

The strong team of IPLF has advised clients from around the world for effective IP due diligence in various corporate deals including the M&A deals.

Author: Saransh Chaturvedi (an advocate) currently pursuing LLM from Rajiv Gandhi School of Intellectual Property Law (IIT Kharagpur).  In case of any queries please contact/write back to us at support@ipandlegalfilings.com.