IP-related warranties and/or indemnities in both a share sale and an asset sale

The amount and type of warranties and/or indemnities that are given by the seller is largely determined by the due diligence exercise. Other pertinent factors such as the bargaining positions of the parties involved and the commercial importance of the germane intellectual property could also influence the nature and extent of the aforementioned. There will be a section for warranties and indemnities in either the business sale agreement or (if required) the stand-alone agreement for the assignment of intellectual property rights. Ordinarily, the purchaser can expect to receive the following warranties:

  1. Ownership of intellectual property rights – the seller warrants that it owns all the intellectual property rights listed in the agreement i.e. they must be unburdened by third-party interests.

  2. Confidentiality – the seller warrants that no breaches of confidentiality have occurred.

  3. Infringement, litigation and settlement agreements – the seller warrants that to the best of their knowledge, the business being transferred does not infringe any third-party intellectual property rights and that the intellectual property rights being transferred are not currently being infringed by third parties. Furthermore, the seller should also provide a statement confirming whether the business is involved in any litigation proceedings regarding intellectual property rights. All contentious matters and any settlement agreements should be disclosed to the purchaser.

  4. Payment of applicable fees – the seller warrants that all fees relating to the intellectual property rights have been paid e.g. application and renewal fees.

  5. Oppositions and challenges – the seller warrants that there are no oppositions or challenges to the intellectual property rights.

  6. Licences – the seller warrants whether there are any licences in respect of the intellectual property rights and whether there have been any breaches or disputes.

It is imperative to appreciate that all the above-mentioned warranties would need to be negotiated the seller will want to limit the scope of warranties that are given. Moreover, any provisions indemnifying the purchaser in the event of a breach would also need to be discussed by the contracting parties.

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