10 Key Intellectual Property Issues For M&A Deals

Anderson L. "Trey" Baldy is a Partner in our Tampa office.

HIGHLIGHTS:

Intellectual property (IP) assets often constitute the most significant component of technology sector businesses. As a result, IP legal issues are of crucial importance in merger and acquisition transactions. There are several key issues that should be addressed in pre-transaction IP due diligence, as well as IP terms and conditions in technology sector purchase agreements. Intellectual property (IP) issues are increasingly important factors in merger and acquisition (M&A) transactions. Of the various industry sector transactions included in recent American Bar Association (ABA) Business Law Section M&A Deal Points Studies, technology sector transactions consistently rank at or near the top. Because IP assets often constitute the most significant component of technology sector businesses, IP legal issues are of crucial importance in these transactions. Key issues that should be addressed in pre-transaction IP due diligence, as well as IP terms and conditions in technology sector purchase agreements, include the following:

1. Identify the IP

   The scope of IP assets obviously will depend on the nature of the particular business, and IP assets exist in a variety of formats, but most significant IP assets are comprised of registered patents, trademarks and copyrights, as well as software, trade secrets, internet domains and technology licenses. Identification of what IP is important or necessary in the target's business will include an assessment and categorization of what IP is owned, used and licensed in or out by the target. Once the relevant IP is identified, acquirors, investors and their advisors can evaluate IP operational risks and determine how to best address them before consummating the transaction.

2. Ownership of IP

   To determine ownership of registered patents, trademarks and copyrights, a good starting point is to search the registration databases of the U.S. Patent and Trademark Office (USPTO) and the U.S. Copyright Office. However, IP law includes some subtle variations from traditional property ownership principles that may not be apparent from ownership searches. For example, if a patent is registered in the name of multiple co-inventors, each co-inventor has separate rights to grant licenses and receive royalties. A complex ownership question also may arise if the target is a business unit or division within a family of affiliated companies, and technology...