Time to get it right: IP in mergers and acquisitions

By Alastair Rawlence,

A well-maintained IP portfolio and, just as importantly, a well-maintained record of the IP portfolio can add significant value to a company, as well as making it an attractive proposition. From a buyer’s perspective, it can make the transition from buyer to owner a smoother ride. Novagraaf’s Alastair Rawlence outlines the process.

Whether directly or indirectly, consciously or unconsciously, IP will play a major role in any merger or acquisition (M&A) activity. A company’s brand value or its product or innovation portfolio are key value differentiators, providing plenty of strategic reasons for M&A-related activity. In order to maintain that value, however, companies need to be sure that they maintain accurate records of all their IP and to update their records correctly and promptly. It’s a laborious, but necessary task.

Where to start – due diligence checks
In an ideal world, the IP portfolio will have been diligently maintained and recorded, and an acquired company’s IP audited and cleansed as part of the build up to the M&A activity; however, such due diligence does not always take place, whether due to time constraints or the nature of the acquisition.

For that reason, when a merger or acquisition is being considered, there should be an audit of the portfolio at an early stage to see if the records have been properly maintained and the chain of title is up to date. This also serves to verify that the buyer is getting what they think they are buying and gives them the opportunity to ask the seller to make the appropriate updates to the portfolio as a condition of the transaction.

If for reasons of confidentiality or speed it is not possible to conduct the IP audit prior to completion, it should to be done at the earliest opportunity. Transfer of all IP assets to the seller needs to be dealt with equally promptly, especially if the company ceases to exist and it is no longer possible for them to sign any relevant documents. Not all IP is a registered right and so an assessment of all company documents will generally be needed to locate other rights, such as copyright or confidential information, licences or distribution rights.

Having reviewed the records and cross-referenced them with other data resources, an analysis of the scope of protection should be undertaken against the new owner’s or merged company’s business plan. That will enable the new owner to identify key rights and those that are not required. Even in well-maintained portfolios, there are gaps in protection, usually with good reason, which need to be identified and the possibility of obtaining protection reassessed.

After completion – update the ownership
When IP changes hands, records need to be updated at the relevant registries if the rights are to be properly maintained and enforced. Much like having your car insurance registered to the wrong address, buyers may find that they’re not fully protected when they need their rights the most.

Once the portfolio has been evaluated and required rights identified, consideration needs to be given to updating the ownership of registered rights and transferring any rights based on agreements to the new owner.

Updating IP ownership is not always a simple procedure. Each jurisdiction has its own quirks, requirements and fees, whether in terms of the documents that need to be supplied or the timeframes in which companies need to act.

Depending on where the rights are held, buyers may find that they need to:

  • Simply notify the registry by letter or email that the IP rights owners’ address has changed;
  • Provide evidence (e.g. the master deed or a contract signed by both parties) to substantiate a change in address or owner – there may be good reasons why the business sale agreement cannot be disclosed and so the buyer may need to get the agreement of the seller to sign confirmatory assignment documents in those countries; or
  • Supply additional authentication; for example, a notary seal and legalisation from the local consulate.

Translation requirements may also need to be considered.

Organising the process
The most cost-effective and efficient approach to title updates is to do all of it in one hit. However, depending on the jurisdictions and rights in question, it is possible to phase the process of updating records post-M&A. As a general rule, companies should seek to ensure that their records have been verified and updated by the date by which the next renewal is due.

For trademarks, where renewals are generally payable every 10 years, this can give rights holders a good window in which to plan their activity; e.g. they can decide to update their core rights promptly or prioritise those registered in key jurisdictions, but then to wait for the next renewal deadlines for lesser rights to decide whether they even wish to maintain a right and, if so, update it at that time. For patent rights, time constraints are generally more pressing given that most renewals are payable annually. It’s also important not to overlook updates to design rights and any other registered, non-registered or recorded forms of IP, e.g. domain names, copyright assignments etc.

It should always be kept in mind that if you do not record the changes straightaway, obtaining signatures from the seller will become more difficult as time passes and if the seller is liquidated or dissolved, can become impossible.

One way to avoid that is to ask the seller to sign the documents on or as soon as possible after completion; although note that, in some countries, the documents become void or invalid with time so that does not always solve the problem. It is worth noting that until the ownership is updated, it is not possible to enforce rights in most countries or situations, and buyers may also be unable to claim damages for any acts committed before the owner- ship change has been recorded on the relevant register.

Finally, companies are advised to look into time schedules in advance of formulating their updating strategy. Some jurisdictions have a six-to-eight month timeframe in which records need to be updated and companies that do not adhere to this will need to pay a local fine. Here, quick and easy access to the named signatory will be also be crucial. Novagraaf’s experienced teams are practised in the processes required to verify and update records in every key IP jurisdiction, whether for a direct client or as an outsourced assignment from an in-house team. Our experienced back office can cross check registered rights against a company’s records and identify variations. The team can advise on where to find and evaluate non- registered IP rights and how best to keep a record of them going forward.

Once the due diligence process is complete, our back office teams have experience of recording transfers of ownership, the documents required and processes involved, making the experience ultimately less stressful. 

Alastair Rawlence is a Trademark Attorney at Novagraaf in the UK

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