A number of factors have contributed to a growing trend for private business owners to consider selling all or part of their companies, whether it is financial difficulties, the need to off-load non-core assets or for reasons of succession. Withers & Rogers’ Nicholas Jones and Tania Clark report.
However, before doing so, it’s imperative that business owners invest time in ensuring that their intellectual property (IP) portfolio is in order.
It can be notoriously difficult to accurately estimate the value of IP rights and those considering selling corporate assets could end up undervaluing them if they fail to present up-to-date information. It is therefore crucial that when attention turns to IP matters, which usually occurs during the critical, latter stages of negotiations, that they are accurate and up-to-date
An IP portfolio should be arranged and prioritised in a way that lends weight to the attraction of a business to potential buyers. Individual assets, including relevant patent registrations should be concisely summarised and, where necessary, renewal payments must be up-to-date in order not to detract from the value that each specific asset can leverage.
It’s unlikely that these less tangible aspects of business management will be the primary motivation for a corporate transaction. However, if due attention isn’t paid to these in time, issues can escalate into potential deal-breakers. From the buyer’s perspective, if licence agreements have not been properly administered or a patent has been incorrectly assigned, although disconcerting in its own right, it also raises questions about the accuracy of other aspects of a seller’s business operations. Uncovering such oversights could unsettle the buyer and cause a delay in negotiations, perhaps while further assurances in the form of warranties are sought.
Joint patent ownership might not be clearly stated, leading to this being discovered on closer examination. While not a critical issue, it’s important that the potential buyer understands the risks associated with joint ownership of IP rights before completing the deal. Additionally, outside agencies or consultants may have been used as part of IP negotiations and portfolio structuring – where relevant, business owners must check the terms of consultancy contracts to ensure that all IP rights were automatically transferred to the company.
Portfolios may also have been split between a number of different patent and trade mark firms, creating inconsistencies in the way that the schedules are presented. It’s therefore essential that if the portfolio can’t be consolidated, a consistent standard in presenting information is adopted.
Although those companies operating without registered trademarks are likely to be viewed as higher risk, it may be viable to rely on unregistered rights to some extent – however, the risk of remaining open to third party imitation is likely to create difficulties if the need to bring an enforcement action arises.
Preparing relevant documentation at an early stage goes a long way towards guaranteeing that protection rights meet the needs of a potential buyer’s business by accurately indicating gaps that need to be addressed on completion of the transaction.
Geographical reach plays a significant part here - trade mark or patent protection is often required in a number of territories and depending on the markets targeted by a potential buyer, such rights may need to be extended. In addition, the classifications specified within an IP portfolio may be insufficient, requiring these to be increased or adjusted ahead of a sale. Acknowledging that these are potential issues to address is the first step, but business owners must also appreciate how long these take to resolve – it takes about four months to register a trade mark in the UK and upwards of 18 months to obtain patent protection.
Intervening early is important as patent and trade mark strategies become more sophisticated, particularly in hi-tech advanced engineering and electronics industries. Where appropriate, business owners can increase their IP appeal by providing patent insights to demonstrate that key inventions have few competitor products or third-party patents in the same field. This additional information may give the buyer an extra sense of security by demonstrating the commercial potential of an invention.
IP is a strategic focus that must be properly recognised if the full value of an asset sale is to be realised. Such considerations need to be treated as an integral part of sales negotiations. At the very least, time may be needed to resolve any issues that arise but there is also the potential to add value and provide enhanced deal security.
Nicholas Jones is a patent attorney and Tania Clark is a trade mark attorney at Withers & Rogers.
