Without any second thoughts, mergers and acquisitions present various challenges to both a buyer and a seller, specifically when it comes to the Intellectual Property (IP) issues. In this scenario, the value of the IP assets can indeed be the deciding factor corresponding to whether the transaction shall take place or not. As the perception of IP assets keeps evolving, more specific requirements may significantly affect the ease of the process and the asset value. With the help of effective planning and adequate resources in place, the buyer and seller can efficiently anticipate these issues and prepare well accordingly.
1. Collecting Documentation
It is a matter of fact that yes – one of the most crucial issues in mergers and acquisitions is collecting the documentation, which assesses and reassigns the valuable IP assets. The seller must provide an all-inclusive set of documentation, including details of trademarks, patents, copyright, trade secrets, and domain names, proprietary information, contracts and agreements corresponding to the IP assets, licenses between the seller and third parties, and documentation for any IP litigation claims. The documentation provided by the seller to the buyer in due diligence shall undoubtedly add a lot of value to the transaction and make it an attractive deal. Ideally, the seller will have an up-to-date and well-maintained IP portfolio with all the necessary documentation; however, it is rarely the case. It is, therefore, beneficial for both the buyer and seller to conduct due diligence at an early stage, which shall give sufficient time to collect all the necessary documentation and have a smooth transaction.
2. IP Ownership
When a seller claims ownership of his or her IP assets, he or she needs to provide warranties and representations in the assignment agreement to the buyer. When it comes to mergers and acquisitions, the same can cause issues in the scenario where the seller has misinterpreted the ownership of an IP asset; for instance – if the seller has licensed the IP asset to some third party. Additionally, the seller also needs to make sure that the responsibility of warranties and representations is successfully transferred to the buyer in the assignment agreement so that no claims can be made against him or her after the sale. For mitigating the risk, both parties need to make sure that they are well-protected in the event of misrepresentations or claims.
3. Open or Potential IP Disputes
In the case of IP issues, a detailed review of all the open and potential disputes is necessary as such disputes may have a significant financial impact on the buyer following a transfer agreement. The buyer shall indeed seek to explore all the resolved, unresolved, or potential claims, along with the limit obligations to those claims. Besides, other claims like data privacy and protection can end up having a similar impact, and therefore, must be considered in due diligence.
Although the financial risk to the buyer can be mitigated via a post-closing agreement, the seller, in this scenario, usually seeks definitive conditions in the agreement. The same can cause a lot of difficulties, as the buyer would then need to evaluate the potential impact of the IP claims, if any, to his or her future business. The seller, on the other hand, may require reducing the price or allocating some of the purchase prices to be held in escrow, in the scenario of pending or future claims. Therefore, both parties should evaluate and anticipate the IP claims and further negotiate their value as part of the acquisition agreement.