Patent Reassignment After Corporate Restructuring
Introduction : One of the most valuable types of business intellectual property is patents. They offer inventors and organisations exclusive rights to technological innovations, allowing them to recover research investment, enhance market position and create commercial value through licensing and/or technology transfer. Patents are among the top assets that are taken into account when corporations merge, are acquired, spin off, demerge and undergo an internal restructuring. Changes in corporate status may therefore impact patent ownership and legal rights regarding patents.
Corporate restructuring can be conducted for a number of strategic reasons, such as expansion of a business, efficiency, tax planning, restructuring investments or splitting business units. While these transactions have the primary goal of satisfying financial and managerial needs, the protection of intellectual property needs to be treated with care. Patents, unlike tangible property, arise from the laws and are governed by a certain legal procedure for assignment, registration and enforcement. Failure to follow these formalities could cause questions about ownership, delay current prosecution of the patents, diminish the enforcement position or cause conflicts over licensing and commercialization.
Legal Provisions
The patent regime for patent reassignment after corporate restructuring is subject to patent law, corporate law, contract law and international IP treaties.
The Patents Act, 1970 (India)
The main act in India for the ownership of a patent is the Patents Act, 1970.
All assignments of patents and all interests in patents must be by written agreement and signed. Oral transfers are not legally recognised. This brings certainty in ownership, and the interests of assignor and assignee are both protected, as explained in Section 68.
Sections 69
This section explains the registration of assignments and transfers in the Register of Patents kept by the Controller. Ownership can be transferred by a proper assignment, but registration allows the assignee to obtain title in advance of the Patent Office and others.
Sections 70 & 71 are about rectifying and correcting entries for ownership where there is an error or dispute once it has been properly recorded then the new owner gets all the rights and proprietary rights, including licensing and assigning.
Companies Act, 2013
The corporate restructuring through amalgamation, demerger and merger is governed by Sections 230-240 of Companies Act, 2013. The assets, like intellectual property, may transfer to the transferee company when the National Company Law Tribunal (NCLT) approves the scheme of arrangement. However, there should also be a record of such changes before the Patent Office, to ensure that ownership records are accurate.
International Framework
The factors that affect international transactions of patents are:
The Paris Convention for the Protection of Industrial Property, which is used to maintain priority rights throughout the member countries.
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), sets minimum standards for the protection and enforcement of patent rights.
The Patent Cooperation Treaty (PCT) which helps with filing patents in multiple countries and updating them in the international and national stages, if required.
These are all the legal tools that ensure that the ownership of a patent is not lost due to corporate restructuring, provided the necessary statutory conditions are met.
Role of the Patents Rules, 2003
The changes in ownership are recognised under the Patents Act which sets out the substantive rules and the Patents Rules, 2003 which provides for the procedures.
This is a form to be filed to claim or request a change in a party to the Applicant.
Form 6 under the Patents Rules, 2003 is one of the most significant procedural documents. The applicant for a patent is notified of any change in the applicant prior to grant on Form 6. It is used when there is an assignment, transmission, merger, succession or any other legal event that leads to a change of applicant for a patent application during its pendency. The form is prescribed with reference to Sections 20(1), 20(4), and 20(5) of the Patents Act and Rules 34(1), 35(1), and 36(1).
The object of Form 6 is to clarify the records of the Patent Office with respect to the person or persons who are entitled to prosecute the application. In the case of corporate restructuring, pending patent applications are often assigned from one company to another. The filing of Form 6 will permit the Controller to replace the name of the new applicant and continue with prosecution without interruption.
Requirements of Form 6:
- The date and number of the application
- Existing applicant’s name and address
- The proposed applicant’s name and address;
- The ground on which the transfer (assignment, merger, succession, transmission, etc.) is made
- Specifies the details of the supporting documents
- Applicant’s or authorized patent agent’s signature.
The request must normally be supported by documents like
- An assignment deed
- A merger or amalgamation order;
- Approved scheme of arrangement by the NCLT
During a corporate restructuring, it is important that Form 6 is completed to ensure that there is always a clear chain of ownership. Official communications may be sent to the company in which the patent application is pending, but if the Patent Office records do not change the ownership to the new company, a communication may continue to be sent to the previous applicant. This can make it difficult to address the requirements of examination reports, file amendments, pay fees or appeal.
Furthermore, if the applicant record is incorrect, it can make subsequent licensing transactions, due diligence by investors and/or enforcement proceedings more difficult. Therefore, it is advisable to file Form 6 at the earliest after the restructuring to ensure continuous administration and minimize the risk of procedural issues.
Legal Analysis
The patent reassignment after the corporate restructuring has many legal questions related to the transfer of the patent rights, the compliance with the law and the enforceability of the patent rights. While the merger, amalgamation, demerger, acquisition and insolvency proceedings are primarily governed by the corporate law, reassignment of patents continues to be governed by independent provisions of the Patents Act, 1970. Often, these legal structures intersect in such a way that there are practical and interpretative issues. A key legal question is whether a patent becomes automatically assigned to the successor entity when there are corporate changes or if there are additional patent law requirements for compliance.
The assets transfer with Sections 230 – 232 of the Companies Act, 2013. The Patents Act, 1970, however, provides that assignments and transmissions of Patent rights must be by written instrument and entered in the Register of Patents in accordance with Sections 68 and 69 of the Act. Ownership can be transferred by operation of law, but not recording the transfer may cause issues when it comes time to enforce or negotiate licences, as to who is the lawful proprietor.
While courts in India have so far acknowledged the possibility of concurrent ownership before registration, the need for speedy registration has always been problematic, and from an evidentiary point of view. The patent reassignment process can be more complicated with the transfer of only certain assets in a merger or business transfer. In contrast to mergers, where it is usually sufficient to have a universal succession, in the case of mergers, one has to be careful to identify each patent and pending patent application that is to be transferred. Vague drafting of restructuring documents can lead to ownership conflicts, especially if patents are tied to a number of business segments and/or technologies. The cross-border restructuring adds further legal complexities since patent rights are territorial rights. Ownership is not automatically changed in other jurisdictions if it is changed in the first place. Multinational companies are thus required to follow the procedures in each country’s patent office.
The concept of patent reassignment also gains greater significance when dealing with insolvency proceedings pursuant to the Insolvency and Bankruptcy Code, 2016. Patents often are important corporate resources that can be monetised via licensing or commercialisation. Resolution professionals or liquidators are thus required to make sure that intellectual property rights are properly identified, valued, and transferred as per insolvency law and the Patents Act. Failure to keep the registration of the patents or the record of the change in ownership can have a considerable impact on the value of the corporate debtor’s IP portfolio.
Relevant case laws
National Research Development Corporation of India v. Delhi Cloth & General Mills Co. Ltd: The Delhi High Court explained that after the registration of an assignment deed under Section 68, the registration is retrospective from the date of execution of an assignment deed. The assignee, therefore, became the true owner from the date of the execution, and had ability to prosecute the suit.
National Research Development Corporation of India v. Silicon Ceramics Ltd: The issue was over the meaning of a contract covering patented technology and whether or not the transaction was an assignment or a mere licence.The Court drew a distinction between an assignment which gave the assignee proprietary rights in the invention and a licence which granted only limited rights to use the invention. Whether Sections 68 and 69 apply is dependent on the nature of the agreement.
National Research Development Corporation v. ABS Plastics Ltd: The Court said that if the assignments and licences which relate to patents are not made in accordance with the statutory requirements, the same are rendered ineffective. The Court reiterated that “registration” cannot be ignored in the case of proprietary interests in patents.
Sergi Transformer Explosion Prevention Technologies SAS v. Kumar Pratap Anil: The Court examined in detail Sections 68 and 69 and restated that assignments of patents can only be in writing and properly executed. This judgment also covered the legal implications of registration before the Controller of Patents.
Practical Implications
The patent reassignment process is important in ensuring that the successor companies can legally enforce patent rights, commercialise inventions, grant licences, and attract investment after mergers, acquisitions, and/or insolvency procedures. The ability to conduct due diligence regarding ownership and the value of patent portfolios in corporate transactions is enhanced by having accurate records of ownership. On the other hand, if assignments are not timely recorded before the Patent Office, there can be problems of ownership claims, problems of proceeding with infringement actions and problems with licensing and future business dealings.
Policy-wise, the need to record separately with the Patent Office, even following a court approved restructuring of the company, adds to the compliance expense and administration. An automatic or expedited recordation mechanism for patent transfers may have a beneficial effect on transparency, streamline the process and enhance commercial certainty.
Conclusion
To conclude that corporate restructuring and patent reassignment play a crucial role in ensuring the proper and legal transfer of valuable IP assets and the correct documentation thereof. Recording before the Patent Office, and compliance with Sections 68 and 69 of the Patents Act, 1970, are crucial for the protection of the rights to enforce the patent and for commercial certainty. In an era where corporate deals are increasingly reliant on intellectual property resources, companies must take care to document deals, carry out due diligence, and adhere to legal requirements to prevent disputes over the ownership of IP resources and make the most of their patent portfolios. Further legal certainty and streamlining of the transfer process can be achieved by boosting coordination between corporate restructuring procedures and patent registration.
Author:- Suresh Kanna, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing.
Endnotes/References
- Patents Act, 1970
- Patents Rules, 2003
- Companies Act, 2013
- Insolvency and Bankruptcy Code, 2016.
- National Research Development Corporation of India v. Delhi Cloth & General Mills Co. Ltd..
- National Research Development Corporation of India v. Silicon Ceramics Ltd
- National Research Development Corporation v. ABS Plastics Ltd
- Sergi Transformer Explosion Prevention Technologies SAS v. Kumar Pratap Anil
- Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), 1994.
- Paris Convention for the Protection of Industrial Property, 1883.
- World Intellectual Property Organization (WIPO), WIPO Intellectual Property Handbook.
- Patent Cooperation Treaty
