by Joseph Dreitler
Will you have all of the intellectual property you expect to own after a merger, acquisition, or refinancing? Will your outside counsel assume that, when acquiring an entire business, that the IP will simply come along for the ride? Well then, consider the following:
When Volkswagen purchased the Rolls Royce and Bentley automobile assets for nearly $800 million in 1998, it acquired almost everything necessary to make a Rolls Royce: the legendary plant at Crewe, the designs, and the machinery. Unfortunately for Volkswagen, those assets did not include the right to use the Rolls Royce trademark! After the deal closed, Volkswagen could make a very high-end car that looked exactly like a Rolls Royce, but it could not call it a Rolls Royce. The Rolls Royce airplane engine company had licensed the Rolls Royce mark to the selling auto maker under a license that terminated in the event of such a sale. The owner of the Rolls Royce trademark had hoped that BMW would prevail over Volkswagen in the bidding war for the auto maker. Although Volkswagen won that war, the owner of the Rolls Royce trademark sold the rights to use the Rolls Royce mark on automobiles to BMW.
Imagine spending hundreds of millions of dollars to be able to make and market Rolls Royce automobiles and then discovering that you could not polish them off with the Rolls Royce insignia. After that, imagine one of your competitors sweeping in and purchasing the rights to the mark! In a monumental agreement rumored to have been reached over a round of golf, and in an effort to avoid litigation, BMW agreed to permit Volkswagen to continue to make cars branded with the Rolls Royce trademark until December 31, 2002. After that time, only BMW will manufacture Rolls Royce cars.
Several years ago, Coca Cola's chairman wrote in his annual letter to shareholders that even if every physical asset of the company were destroyed, the company could raise $150 billion on the strength of one intangible asset - the Coca Cola trademark. At the other end of the spectrum, when the dot-com bubble burst, Pets.com was liquidated, and the only asset sold was its trademark "sock puppet." These examples illustrate the often-overlooked importance of IP to businesses.
Many acquisitions, financings, and bankruptcies over the last 20 years consisted primarily of the transfer or security of intellectual property, mainly brands. Parties rely on their lawyers to make certain that they actually acquire the assets needed to run the business. As in the Rolls Royce example, however, purchasers sometimes end up with far less than expected or desired. In some cases, this situation is due to the rush of doing the deal. In some cases, it results from purchasers using lawyers unfamiliar with intellectual property principles to conduct due diligence. In others, non-IP lawyers fail to include specific language in the purchase agreement to protect the buyer from a variety of complex IP issues that can arise in verifying title and transferring large, worldwide intellectual property portfolios.
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