Nicholas Jones and Tania Clark of Withers & Rogers highlight how IP rights can make or break M&A deals.
Before embarking on strategic growth plans or selling assets to an interested trade buyer, it is important that companies invest time in making sure their intellectual property (IP) portfolio is in order, write Nicholas Jones, patent attorney, and Tania Clark, trade mark attorney, at law firm Withers & Rogers.
It can be notoriously difficult to establish a valuation for IP rights, and businesses considering a sale or an acquisition could end up losing out if they fail to ensure that IP rights and schedules are well presented and up to date. It is important that, when the due diligence team decides to turn its attention to IP matters, which usually occurs during the critical latter stages of negotiations, all the correct information is available.
Much like the Home Information Pack, which has recently been trialled in the residential property sector, businesses should ensure that their IP portfolio is complete and presented in an orderly and saleable fashion. There should be clear and concise summaries of individual assets including relevant patents and trade mark registrations and, where necessary, it should be ensured that any required renewal fees have been paid.
While IP assets are rarely the sole motivation for a corporate transaction, issues can arise and escalate into potential deal-breakers if not properly managed. There is nothing more disconcerting for a potential buyer than to find that licence agreements have not been properly executed or that an assignment of a patent has not been recorded at the appropriate patent office. Uncovering such oversights could be sufficient to unsettle the buyer and cause a delay in negotiations, perhaps while further assurances in the form of warranties are sought.
On closer examination of a patent portfolio, potential buyers could find that patents are jointly owned, perhaps shared with a university or research institution. While this may not be a critical issue, it is important that the potential buyer understands the risks associated with joint ownership of IP rights before completing the deal.
Where non-employed inventors such as consultants have been used, it may be necessary to check the terms of consultancy contracts to make sure that all IP rights were automatically transferred to the company.
Similarly, IP portfolios may be split between a number of different patent and trade mark firms, leading to inconsistencies in the way that the schedules are presented. If the portfolio cannot be consolidated, it would at least be worth ensuring that the different firms adopt a common standard of presentation of the information.
In the case of brand names and corporate identities, companies operating without registered trade marks are likely to be viewed as higher risk. While it is possible to rely on unregistered rights to some extent, the brand could be vulnerable to third party imitation and it is likely to be more difficult to bring any enforcement action.
Rather than leaving IP matters to the last minute, there can be significant advantages in preparing relevant documentation at an early stage. This allows time to ensure that the protection in place meets the needs of the potential buyer’s business, highlighting any gaps that may need to be addressed urgently on completion.
For example, trade mark or patent protection is often required in a number of territories and depending on the geographic reach of the potential buyer, such rights may need to be extended. Alterations can take a long time to achieve – it takes about six months to register a trade mark in the UK, but in India, for example, it can take as long as four years.
Acting early on IP could bring other benefits too. Patent and trade mark strategies are becoming increasingly sophisticated, particularly in advanced engineering industries like aerospace and automotive design. Potential sellers in these sectors could enhance the immediate attractiveness of their IP by providing complementary technology and patent mapping information to demonstrate that key inventions have plenty of clear space around them, with few competitor products or third party patents in the same field. This additional information may give the buyer an extra sense of security by providing an insight into the commercial potential of an invention over the longer term.
Too often IP is treated as an afterthought in commercial transactions, when it could and should be regarded as a strategic asset. At the very least, time may be needed to resolve any issues that arise but there is also the potential to add value and provide enhanced deal security.