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IP transactions: Recording a change of ownership

09-08-2016

In the first part of our in-depth look at the IP assignment process, we set out best practice advice and procedures for smoothing the transition from sales agreement to completion. This time, Novagraaf’s Tom Farrand sets out recommended preparations for recording the change of ownership of registered rights.                                  

When dealing with the recordal of change of ownership of IP rights across multiple jurisdictions, it is essential to have thing well organised. A well-organised administrator is much more important at this stage than a skilled lawyer!

To begin, a clear inventory of documentary requirements needs to be created. This should be done with the help of local lawyers/agents in each jurisdiction in which recordal filings will need to be made and who are up to date not just with the local law, but also with the formalities, procedures and documents required by the local authorities.

Local registries, local law and the required formalities can differ considerably. Being aware of what is needed and when it is needed in each jurisdiction is an important part of the planning stage.

Documentary requirements
Just as with real property, the transfer of ownership of IP rights needs to be by written instrument and executed by or on behalf of the existing owner (assignor) and, usually, the new owner (assignee). In most jurisdictions, in order for the change of ownership to be formally completed and recorded on the local register, it is necessary to submit an original or certified copy of the written instrument.

The main Asset/Share Purchase Agreement could be sufficient for this purpose, but that approach does have a number of disadvantages, including:

  • Confidentiality: In many jurisdictions, the documents submitted to record ownership will be open to public inspection; these days, often via the website of the local intellectual property office. As the main agreement usually includes commercially sensitive information (such as the sales price), the main parties may not wish it to be open to public scrutiny.
  • Tax implications: The payment of the consideration involved may be subject to tax in some jurisdictions. Submission of the main agreement might open the transaction up to investigation by local tax authorities. This may not be critical if the proportion of the consideration applicable to the jurisdiction in question is not significant; however, it may still involve unwanted delays and complications.
  • Size: These types of agreements are usually long and the practicality of providing multiple originals or certified copies should be avoided.
  • Parties: The existing recorded owner and the target new owner may not themselves directly be parties to the main agreement (e.g. in relation to IP rights held by subsidiaries). Further documentation will therefore be needed in that case anyway.

These are just some of the reasons why it is generally more practicable to create separate short-form assignment documents (also known as ‘confirmatory assignments’). These can be tailored to fit with specific requirements of local jurisdictions and keep the information required to a minimum.

In many jurisdictions, it is still a requirement for documents to have a Notarial Certificate and to be legalised by the local authorities. This Certificate is provided by a notary to the effect that, for example, the person signing for the assignor is an office of the assignor company and entitled to sign the document on its behalf. Once notarised, there are various routes to getting a document legalised, including via apostille or by an official of the local consulate or embassy of the jurisdiction in question. Unsurprisingly, this can take some time. Therefore, if the recordal in a particular jurisdiction is time sensitive, and notarisation and legalisation is required, it is important to be prepared for this and to submit the notarised documents for legalisation as soon as possible after completion.

Potential pitfalls: Holes in the chain of title
It frequently happens that the vendor has not kept its portfolio of IP rights completely up to date with past ownership changes resulting from, for example, company name and address changes, mergers, acquisitions, and corporate reorganisations and restructurings. The result is that it will be necessary to record the earlier changes before recording the latest change of ownership. Local documentary requirements will need to be met for each link in the change of title.

This requirement should be anticipated from the pre-transaction due diligence, and planned for in the transition phase. The scope of the warranty provisions in the transaction documents may  mean that the vendor updates the registers prior to completion. If not, any additional costs involved should be taken into account by the purchaser; for example, by a proportional reduction in the consideration or the vendor agreement to cover some or all of the associated cost.

In some extreme cases, it will not be possible to complete the chain of title for some IP assets. For example, this may occur when there has been a restructuring of a group with a subsidiary ceasing to trade. The warranties given by the vendor in the main agreement should enable the purchaser to seek redress and obtain compensation for any resulting loss of rights.

Regulatory considerations
Some sectors are highly regulated and this may also impact the ownership and transfer of IP rights. One prominent example is the pharmaceutical industry, in which product licences and marketing rights are just as important and valuable as IP rights such as patents and trademarks.

For transactions in these sort of sectors, aside from ensuring that the necessary documents are completed, care needs to be taken over the transition of ownership to ensure that the right to sell or distribute products is not lost and that the new owner does not fall foul of regulatory limitations. Keep in mind too that regulatory authorities in some jurisdictions do not process changes quickly.

These types of allied rights are also in the main administered by bodies that do not deal with IP rights on a daily basis. Plant breeders’ rights, domain names and pharmaceutical product licences are all examples of rights, allied to core IP rights, that may be acquired as part of a transaction, but whiuch require separate recordal.

This is part 2 of our in-depth look at the IP assignment process. For further information, sign up to our ezine or contact one of our experts.