Business purchases, Intellectual property and due diligence

The following article looks at the due diligence required by a potential buyer in relation to intellectual property rights (IPR’s).

For any purchaser of a business it is essential to ensure that the buyer acquires all the intellectual property rights associated with the business to enable them to continue with the conduct and objectives of the business purchased (i.e. make a profit!).

The due diligence enquires should include independent searches to determine the IP assets the business owns and the any licences the business may have acquired or granted in the course of its dealings, due diligence enquiries are also essential to identify any potential problem areas.

IPR’s are made up of either registered or unregistered rights, they offer the benefit of a monopoly in the right acquired and they are recognised in the majority of the countries globally, however it must be borne in mind that the legislation that govern them may differ significantly.

What types of IPR’s may a company own?

A company may own a variety of different IP rights or may even have access to make use of certain rights by way of a licence, the most common types of IPR’s owned may include:

  • Registered Trade Marks
  • Copyright
  • Registered Patents
  • Registered and Unregistered Designs

How long does the protection last?

It is important to also note the length of protection afforded to a particular right, for example in the United Kingdom:

  • A registered trade mark is given an initial period of 10 years protection, this length of protection may be renewed indefinitely – Trade Marks Act 1994.
  • Copyright, a right that arises automatically and requires no formal registration, has a protection period that varies depending on the type of copyright, for example a literary work is given protection for the life of the author/owner plus an additional 70 years – Copyright     Designs and Patents Act 1977.
  • A patent may be afforded protection for 20 years – Patents Act 1977.
  • A registered design has a maximum protection period of 25 years – Registered Designs Act 1949.
  • Unregistered designs may have protection between 10 to 15 years from the date they are first marketed – Copyright Designs and Patents Act 1977.

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Fact finding: registered and unregistered IPR’s

As well as the term of protection it is also necessary to find out the territories within which protection has been acquired. Registered rights such as trade marks and patents are generally quite easy to obtain information on, research on the unregistered designs may however not be as straightforward.  Certain industries such as the fashion and entertainment industries rely heavily on unregistered designs and analysis of a company’s internal records and documents is particularly important in establishing subsistence and ownership in the same.

Rights subject to licences

Most companies will have obtained licences in relation to the use of software and IT arrangements, for a IPR licence the following considerations are important:

  • Sole, exclusive or non exclusive licence? An exclusive licence as the name suggests permits use by the licensee only, with the exclusion of use by the licensor or of the licensing to third parties a non-exclusive licence does the opposite. A sole licence will permit use by the licensor as well as the licensee, however as with an exclusive licence the licensor cannot licence to third parties.
  • The territory, term, termination and royalties associated with a licence are further considerations that a potential buyer must research before a purchase is made.

All of the above enquires are essential for a potential buyer in order to gain a good understanding of the IPR’s associated and owned by a businessbefore making a decision to purchase.

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