Merger and acquisition (M&A) activities present many challenges to buyers and sellers, particularly when it comes to intellectual property (IP) issues. Given the value of IP assets can be a deciding factor for whether a transaction will take place, preparing for these potential M&A issues in advance can help streamline the process for both parties.
From missing documentation to errors in IP ownership data, IP can significantly impact the ease of the M&A process, as well as IP portfolio value. With effective planning and resources, the buyer and seller can anticipate potential M&A issues and prepare accordingly.
Four Major M&A Issues for IP Professionals—and How to Overcome Them
1. Sourcing, Preparing, and Collecting Documentation
One of the most common issues in mergers and acquisitions is collecting documentation required to assess and reassign IP assets. To obtain an accurate IP portfolio assessment in the due diligence phase, 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, as 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.
To proceed with recording ownership changes after the M&A, the buyer must have the relevant documentation to hand, including all the relevant deeds of assignment and powers of attorney.
2. Intellectual Property Ownership
When a seller claims ownership of an IP asset, they will need to provide representations and warranties to the buyer in the assignment agreement. In M&A activities, this can cause issues if the seller has misrepresented their ownership of an IP asset or if there is an error in the record. For example, if a third party has part ownership of the IP asset, the seller has licensed the asset to a third party, or the IP asset has not been updated following a business change (such as a change of name).
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. 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 assessment of open or potential disputes is necessary in case of IP issues that may have a significant financial impact on 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. In addition, 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 on 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. Managing the Transfer of IP Assets
With deadlines, documentation, and translation requirements varying by jurisdiction, there are many potential challenges in the IP transfer process, so planning ahead will be critical to success.
Changes to ownership need to be recorded within a certain time of an asset transfer taking place in some countries, and missing these timeframes can have grave implications for your asset(s), including exposing you to the risk of losing the associated right(s). Similarly, there are some countries in which all ownership changes for 'similar marks' resulting from a merger or acquisition need to be filed at the same time, and it is not permitted to do things piecemeal, so it's vital to know the requirements in different countries and to prioritize accordingly.
Cost management is equally critical, since having documents translated and/or legalized in each jurisdiction can be extremely extensive and expensive. While you will not be able to avoid these costs, it's important to take them into account at the start of an assignment project, since failure to do so can eat up a huge part of your budget.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
