Mergers and acquisitions present many challenges to a buyer and a seller, particularly when it comes to intellectual property issues. The value of IP assets can be the deciding factor for whether or not the transaction will take place.As the perception of IP assets continues to evolve, more specific requirements may significantly impact the ease of the process as well as the asset value. With effective planning and resources, the buyer and seller can anticipate these issues and prepare accordingly.
1. Sourcing, Preparing and Collecting Documentation
One of the key issues in mergers and acquisitions is collecting documentation required to assess and reassign IP assets. The seller needs to provide a comprehensive set of documentation, including patents and patent applications, trademarks and service marks, trade secrets and proprietary information, licenses between the seller and third parties, contracts and agreements regarding the IP assets, documentation for any IP litigation claims, and domain names.
The documentation provided by the seller to the buyer in due diligence will add as much value as possible to the transaction to make it an attractive deal. Ideally, the seller will have maintained an up-to-date IP portfolio with all the necessary documentation. However, this is rarely the case. It’s advantageous for the buyer and seller to conduct due diligence early, allowing as much time as possible to collect the necessary documents for a smooth transaction.
2. Intellectual Property Ownership
When a seller claims ownership of an IP asset, it will need to provide representations and warranties to the buyer in the assignment agreement. In mergers and acquisitions, this can cause issues if the seller has misrepresented their ownership of an IP asset. For example, if a third party has part ownership of the IP asset or the seller has licensed the asset to a third party.
The seller will also need to ensure the responsibility of representations and warranties is effectively transferred to the buyer in the assignment, so claims cannot be made against them following the sale. In order to mitigate risk, both parties will seek a definitive agreement to ensure they are protected in the event of misrepresentations or claims.
3. Open or Potential IP Disputes
A detailed review of open or potential disputes is necessary in case of intellectual property issues that may have a significant financial impact to the buyer and/or seller following a transfer agreement. The buyer will seek to discover any resolved, unresolved or potential claims and limit obligations to those claims. IP claims have a significant impact on the value of an acquisition. Additionally, other claims, such as data protection and privacy issues, can have a similar impact and should be considered in due diligence.
While financial risk to the buyer can be mitigated through a post-closing agreement, the seller will generally seek definitive conditions in the agreement. This can cause difficulties as the buyer needs to assess the potential impact of any IP claims to its future business and the seller may need to reduce its price or allocate some of the purchase price to be held in escrow in case of pending or future claims. Both parties should assess and anticipate IP claims and negotiate the value of these claims as part of the acquisition agreement.
4. Disclosure Schedules
Mergers and acquisitions can be relatively quick transactions for a number of reasons. Once a potential sale becomes public knowledge, it can have a negative impact on both the buyer and the seller. For instance, the seller may be subjected to IP claims from third-party opportunists. Or the buyer may find themselves competing with offers from other interested parties. So both parties will generally prefer a swift transaction as possible.
In order to facilitate a speedy sale, the buyer will provide a disclosure schedule to the seller, outlining the key disclosures for the seller to provide within a given timeframe. This is a complex and detailed document that, if not completed correctly, can cause intellectual property issues during and after a sale. It should include a comprehensive list of required disclosures including, but not limited to patents, patent applications, licenses, contracts, trademarks, claims, indemnifications, and financial agreements. This document is extremely important, but can cause issues for the buyer as it is time-consuming to complete and requires a high level of attention to detail for accuracy.
If your business is considering a merger or acquisition, consulting with an IP specialist, such as Brandstock, can provide you with valuable insight and resources. Contact our team for more information about IP management services.