Look before you leap: How to safely transfer IP portfolios following M&A
Advance preparation is crucial for any transfer of IP ownership. Yet, no matter how extensive the IP due diligence before a merger or acquisition deal is agreed, the recordal process rarely passes without hitch.
Updating records following merger or acquisition (M&A) is a time-consuming and often costly process, bound as it is by the cleanliness of the existing records and the vagaries of each jurisdiction’s recordal system. However, there are steps that companies can and should follow to smooth the process and minimise the demands on their internal resources.
Phase 1: Prepare the foundations
To ease the completion process that follows M&A activity, due diligence should be conducted in advance of the deal in relation to the IP assets being acquired. For example:
- Exactly which entity is recorded as the owner of each right?
- What is the status of the core rights: are they in force and actively protected?
- Do the registered rights match those used in the business? Are there any missing?
- Are there licences recorded against any rights?
- Are there charges or other interests recorded against any rights?
- Are there any unregistered rights that should also be transferred/registered?
The extent to which companies are diligent in the registration and maintenance of IP and IP records varies. If rights have not been kept up-to-date then they are at risk in terms of validity and/or enforceability. Obtaining the answers to these questions in advance enables effective planning for the recording of changes of ownership.
For example, it is common to discover that the vendor has not kept its portfolio of IP rights completely up to date; typically, as a result of past ownership changes resulting from, for example, company name and address changes, mergers, acquisitions and corporate reorganisations. As a result, it will be necessary to record the earlier changes before recording the latest change of ownership. Identifying this as part of the pre-transaction due diligence will enable you to plan effectively during the transition phase; for example, by obliging the vendor to update the registers prior to completion or by a proportional reduction in the purchase price to cover some or all of the associated cost.
Phase 2: Bind the vendor
It is usual for an M&A agreement to place an obligation on the vendor to assist the purchaser in taking all the necessary steps to record the change of ownership of IP rights. This generally includes a requirement to complete whatever documents are needed in order to meet the formal requirements of recording the change. Ideally, it should also include an obligation on the vendor to provide IP information and support both during and after the handover process. This is particularly important when it comes to unregistered rights where creation and use are important factors in the ability to register or enforce rights post-completion.
The scope of the obligation on the vendor should be clear and broad enough to enable effective future protection of rights as well as facilitating the recordal of the change of ownership. Clearly, it is in the interests of the purchaser to have as long a duration of these obligations as possible. However, there will normally be a time limit and the purchaser needs to be mindful of this limit when planning the recordal process.
Phase 3: Get organised
When dealing with the recordal of change of ownership of IP rights across multiple jurisdictions, it is essential to have things well organised. An experienced 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.
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 vendor (assignor) and, usually, the new owner (assignee). When it comes to formally submitting change of ownership, 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.
For example, in many jurisdictions, it is still a requirement for documents to have a Notarial Certificate and to be legalised by the local authorities. Both the notarisation and legalisation process take 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.
For further guidance on managing the IP recordal process following M&A, please read our article ‘IP in M&A: 5 steps to manage the recordal process’ or contact us below.