Key IP considerations in M&A deals

Is the disclosed IP appropriate for the ongoing business?

The value of IP should be assessed in the light of the plans for the ongoing business, and the suitability of the IP to meet those plans should be assessed.

• It is not uncommon for businesses to be acquired with the intention of expanding the use of existing IP into other fields or territories.
• Equally it is not uncommon for businesses to be acquired with the intention of abandoning some of the IP.
• It is sadly too common for IP to be held that has no practical value even to the IP holder.

Knowing where the value lies is key, and requires both commercial and technical assessment. The higher the potential value of the IP, the greater the requirement to preserve the IP.

Are there IP risks?

IP risk should be assessed not only in relation to the plans for the ongoing business, but also in light of past behaviour of the parties.

Risks include:

• Pending IP litigation against one of the parties.
• Potential IP litigation against the ongoing business.
• Third-party IP rights that have the potential to pose a problem (e.g. patent applications where the final scope is not decided).
• Agreements with IP terms that may inhibit the use of IP.
• Inadequate licences/assignments for IP intended to be used in the ongoing business.
• Risk of inadvertent or malicious disclosure of trade secrets.
• Disgruntled author/designer/inventor employees that might make claims or damage IP or reputation.

A risk assessment requires both a commercial assessment of the value involved and a technical assessment of the likelihood of adverse outcomes.

Will IP action be required?

Will it be necessary/prudent for IP action to be undertaken by the ongoing business shortly after an acquisition/merger?

Such action might include:

• Recording the transfer of registered IP.
• Filing applications for new IP.
• Filing applications to expand the territorial scope of existing IP (if possible).
• Withdrawing unpublished patent applications for IP best covered as trade secrets.
• Challenging third-party IP.
• Launching infringement action.

The costs involved are variable, and developing an IP strategy should be considered at an early stage.

Are key innovators likely to stay with the new entity?

In many cases a business has grown because of key authors/designers/inventors that the ongoing business will seek to retain on a long-term or transitional basis. The mechanics of retaining such people may be an important consideration in a deal.

The above considerations are not exhaustive, contact our Intellectual Property team for expert guidance on IP or get in touch with our Corporate & Commercial team if you are considering, or need any advice on, buying or selling shares or assets in a company.