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• Different categories of IP assets of a company.
• Valuation of IP assets.
• Aligning the IP assets being acquired.
• Means of acquiring IP assets of a Company
• Transfer of Domain names • Tax considerations • Foreign Laws impacting on IP.
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Introduction: What is IP?
“Most creations resulting from human endeavors in various fields of art, literature ,science and technology constitute Intellectual Property”
Ownership Valuable Assets Intangibles
Time & cost intensive
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Why are IP assets important ?
Its creation is both time and cost intensive
Requires an assembled trained workforce for its creation Requires building of goodwill through advertising programs Generates Customer loyalty Adds to commercial value of organization Its exploitation brings consistent additional profits to an organization
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Trademark & domain names Copyright Trade secrets Patent Categories of IP rights Utility model/Designs Geographical Indications Plant Breeder’s rights © Seth Associates. 2006 All Rights Reserved 5 .
1999 The Patents Act. 2006 All Rights Reserved Patents Copyright Designs Geographical Indications 6 . 2001 Semi conductor IC layout design Act. 1957 The Designs Act.2000 © Seth Associates. 2000 The Geographical Indications Of Goods Act.Different Acts governing IP assets Trade Marks The Trade Marks Act. 1970 The Copyright Act. 1999 The Protection of plant varieties and Plant Varieties Semi conductor IC layout Farmers’ Right Act.
Copyright. UK & Australian Generally Accepted Accounting Principles (GAAP) has specified goodwill as an umbrella concept consisting of unidentifiable intangible assets and should not include those Intellectual Properties which are capable of individual identification and can be sold separately. Copyright protection also extends to cinematographic film and sound recordings. © Seth Associates.is a bundle of rights granted to an author of an artistic.The designs entitled to protection are new and original designs having aesthetic value which have not been previously known or published in India or elsewhere. 2006 All Rights Reserved 7 .Rights that different IP assets protect Intellectual Property can be clearly distinguished from Goodwill. literary or musical work to print . Designs.publish and sell copies of his work and other allied rights.
a device. © Seth Associates. • Above all brand is supposed to inspire trust. Trust failure can lead to brand failure and brand failure can be fatal. 2006 All Rights Reserved 8 . Patents. • To evoke distinct associate stands for certain personality traits and carries emotional attachment. • To enhance the perceived value.is an identification symbol which may be a word. or a combination thereof used in the course of trade that enables the purchasing public to distinguish one trader’s goods from similar goods of other traders The purpose of Brand is: • To uniquely identify a company and its product. Trademarks.is the grant of a monopoly right to an inventor who has used his skill to invent something new. a label or numeral etc. the quality and satisfaction that a customer experiences. • To differentiate them from competitor.
Indications Patents / Utility Models All IP rights Invention Financing Literary / artistic creation Product Design Commercialization Marketing Exporting Licensing Copyright © Seth Associates. IP adds value at every stage of the innovation and commercialization process Industrial Designs Trademarks Trademarks. Designs. Geo. 2006 All Rights Reserved All IP rights 9 . Ind.
3% 100% © Seth Associates.700 58.9% 8.The IP of Gillette Gillette Company Value($) Asset Values in US $ Working Capital Fixed/other assets 2.850 5.131 Total 4.854 44. 2006 All Rights Reserved 10 .0% 76.8% Intangible assets IP Total Invested Capital 5.535 10.
"Coca-Cola". worth 31 billion US dollars.2 billion US dollars.World's three most valuable trademarks! 1992 Financial Week listed. 35 30 25 20 15 10 5 0 Budweiser Marlboro Coca-Cola "Marlboro". worth 24 billion US dollars. 2006 All Rights Reserved 11 . © Seth Associates. worth 10. as the world's three most valuable trade marks. and "Budweiser".
Copyright in photographs .Duration of Term of Protection Patents (20 years) Trademarks (10 years + renewals) Copyrights in published literary. doctrine of breach of trust) © Seth Associates.) following the year in which the performance is made) Performers right-(25 years from the beginning of the calendar year next Industrial designs (10 years+ renewal permitted once for 5 years ) Trade-secrets and know how collectively ―proprietary technology‖ (contract period-protected by contract provisions. musical. 2006 All Rights Reserved 12 . and artistic works (Lifetime of author +60 years). sound recordings –(60 years from year in which it was published) Broadcast reproduction right-(25 years from the beginning of the calendar year next following the year in which the broadcast is made. dramatic.cinematographic film.IP.
2006 All Rights Reserved 13 .IP-Flow in Mergers and Acquisitions A merges into B Company A (Owns IP) -> Surviving company (B) (IP of A becomes property of B) ( IP of A transferred to B) © Seth Associates.
Company A. gets acquired by Company B and by virtue of such acquisition. there is no transfer of interest in the IP.IP-Flow in Mergers and Acquisitions In a corporate acquisition. In a takeover. Company B gets control over all assets of Company A. which owns the IP. though the acquirer company gets effective control over the IP © Seth Associates. the ownership over the IP continues to remain with the Target Company. including its IP. 2006 All Rights Reserved 14 .
2006 All Rights Reserved 15 . people . knowhow ? business People Fixed assets Once you have worked out what drives the value make sure that it is still there after you have acquired the business! Intangibles .“How to determine the Value ?” What underpins the cash flows of this business .fixed assets.IP assets .usually a part of business valuation © Seth Associates.
Brand valuation The modus operandi of the valuation would vary in each case as they are strongly influenced by existing environments. competition scenario. There are forty odd variables. 2006 All Rights Reserved 16 . technical know-how. To valuate a brand and other intellectual properties the valuator requires careful analysis. and in legal fields. keen judgment. which in generic term are called environments that affect the value of the brand. The environments broadly are internal & external environment and the major variables are internal strength. impact of globalization among others. marketing scenario. growth prospective. government policy. marketing. consumer perception. technical know-how and its changing speed. thorough professional knowledge and a team of members who have expertise in finance. © Seth Associates.
WHY DO WE NEED IP VALUATION? Intangible benefitsEnhanced Confidence . As the valuation report does not only indicates value. Strategy development Tangible Benefits in Mergers and AcquisitionsA) Can help in Capitalization: A Balance Sheet which incorporates a brand value provides a more realistic picture and goodwill arising from an acquisition can be reduced as goodwill invariable needs to be amortized where as the brand value can stay in the Balance Sheet giving more realistic presentation of capitalization b) Merger & Acquisition: It is of critical importance for an acquirer. the report also shows as to how the value has been worked out elaborating all assumptions. as well as for the vendor to understand and evaluate their real worth for negotiating the correct price. which provides the real insight and would be of great value to the acquirer C) For taxation purpose: Taxation department desires that all such transfers must be executed at Arm’s length transaction. 2006 All Rights Reserved 17 . Valuation certification from an independent establishment of repute is the best way to establish that the value of transaction as reflected is a true value © Seth Associates.Indicator of effective utilization . Credibility to the real worth.
2006 All Rights Reserved 18 .Reasons Why IP is Ignored Under estimation of its importance Lack of Awareness Time Required for Grant of a Patent/registration of TM Myth that it can’t be computed /valued Cost of Patenting Enforcement of IPR © Seth Associates.
Importance of Intellectual Property due diligence
The increased profile, frequency, and value of intellectual property related transactions have elevated the need for all legal and financial professionals and IP owner to have thorough understanding of the assessment and the valuation of these assets, and their role in commercial transaction Intellectual Property due diligence generally provides vital information specific to future benefits, economic life and ownership rights and the limitations of the assets all of which affects final value. Therefore due diligence is prerequisite to the valuation process, regardless of the methodology used.
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IP due diligence in Mergers & Acquisitions
IP Due diligence is the process of investigating a party’s ownership, right to use, and right to stop others from using the IP rights involved in sale or merger ---the nature of transaction and the rights being acquired will determine the extent and focus of the due diligence review. Due-diligence should reveal • Who owns the rights? • Are the rights valid and transferable and enforceable? • Are there any agreement or restriction that prevent the party for granting rights to other? • Is the property registered in the proper office? • Any shortcoming or default on payment? • Any past or potential litigation? • Has the property being misused in the past rendering right unenforceable? • Any encumbrances? It should also evaluate agreements material to the company’s business that may be affected by change of control, agreements that may vest rights in intangibles, and company policies and practices.
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Pre-due diligence formalities
Before the due diligence commences, counsel of both the parties must consider important legal issues related to conducting the due diligence such as confidentiality obligation of the target company and execution of the due diligence should also be arranged between the parties
Legal basis for due diligence-often starts in the form of letter of intent or memorandum of understanding and commonly regulates the due diligence process. Confidentiality agreement between buyer and Target Company is one of the necessity and both should ensure that it is carefully drafted and shall include the scheduling, modus operandi and deadlines, with due emphasis on Attorney-Client privilege
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Buyer having done the preliminary due diligence with respect to current status of Intellectual Property portfolio should evaluate the portfolio with respect to function strategy to work out: • • • • Ownership strategy. 2006 All Rights Reserved 22 . or internal assessment of its own and will be influenced by budgeting.The scope of Intellectual property due diligence The scope of Intellectual property due diligence will be determined by a number of factors such as parties goal in the transaction such as capital contribution. Enforcement strategy © Seth Associates. assets transfer. Exploitation strategy. available human resources. Protection strategy. the size and complexity of target company and its intellectual property portfolio among other such issues. security of loan.
© Seth Associates.Preliminary assessment Target company should make a preliminary assessment of the current status of its intellectual property portfolio and management including: • Current holding and their status. protection and exploitation. If the due diligence were being conducted for internal purpose the goal would be quite different than the due diligence for external reason. This would also help the target company to define its perspective. • Goals for the portfolio. • Historical and prospective investment in Intellectual Property acquisition. 2006 All Rights Reserved 23 .
(2) the scope of the transfer. the representations and warranties.and independent investigation may be affected by change of control Review of Agreements material to the company’s business that © Seth Associates. 2006 All Rights Reserved 24 . document review . unless the purchase agreement otherwise provides.What an IP attorney ought to consider The most significant provisions of the agreement from the IP attorney’s perspective are: (1) definitions of assets and IP. for any monetary damages resulting from disclosed events. and (3) representations and warranties. indemnification provisions. and disclosure schedules Disclosure schedules are also critical because typically the seller is not liable. Due diligence conducted at three levels-personal interviews.
trademark and copyright rights and filings PTO. lien) or other encumbrance UCC filings (security interest) Internet/news database searches Westlaw/Lexis or other databases re: litigations Prosecution files and assignment records If your client’s public. SEC filings © Seth Associates. WIPO web sites Assignment records and maintenance fee/annuity records for patents Commissioned Copyright Office searches with chain of title information and information on any security interest (e.g. and foreign patent. 2006 All Rights Reserved 25 .trademark and copyrights. designs U.Independent investigation methods Due diligence check at Indian registries of patent .S.
DUE DILIGENCE: What are some typical provisions that might raise a word of caution? THE ANALYSIS Anti-assignment Silence on assignment Non-exclusive rights grants to or from your client Covenants not to sue (any covenant!) Automatic reversion/transfer of rights Government licenses Ambiguous or ineffectual rights grants Termination Loss of rights Indemnification (especially if not limited) Sublicenses Assignments Non-compete Source code escrow Unusual jurisdiction © Seth Associates. 2006 All Rights Reserved 26 .
Important checklist-copyright Scope of Rights (exclusive. non-exclusive) Grants Effective Rights Transferable Assignments in Proper Order assignment where appropriate Registrations in Proper Order No Encumbrances/Liens © Seth Associates. 2006 All Rights Reserved 27 .
non-exclusive) Grants Effective Rights Transferable Assignments in Proper Order assignment where appropriate Registrations in Proper Order No Encumbrances/Liens © Seth Associates. 2006 All Rights Reserved 28 .Significant Trademark Issues Scope of Rights (exclusive.
2006 All Rights Reserved 29 .Significant Trade Secret Issues: Confidentiality/security precautions and procedures Proper markings/legends Employment agreements Non-disclosure agreements © Seth Associates.
Significant Domain Name Issues: Verification of record owners Assignments in proper order Status of registration and renewal © Seth Associates. 2006 All Rights Reserved 30 .
has licensed from someone else and has licensed to someone else (see disclosure schedule) Seller hasn’t given any IP or rights away unless it’s disclosed Seller owns or has acquired sufficient rights to exploit the works in the way it is doing so currently Good and marketable title No liens or judgments © Seth Associates. 2006 All Rights Reserved 31 .Some typical representations and warranties Here are some lists of all the IP seller owns.
opposition. threatened claims against seller unless disclosed Seller not violating any third party rights unless disclosed Third party not violating any Seller’s rights unless disclosed No pending. More Reps and Warranties: All registrations and applications to government entities with respect to IP are valid and in full force and effect and all registration and renewal fees due up to closing are paid. rights thereunder Owns rights to customer information. Right to use computer systems and software No pending. threatened claims asserted by seller unless disclosed Domain names and trademarks are still in full force and effect as of closing and no pending or threatened challenge to domain names. 2006 All Rights Reserved 32 . supplier information or other lists included in the IP assets being sold © Seth Associates. as to trademarks Assignability of contracts. etc. cancellation.
it is critical that the seller provides appropriate warranties such as warranty that it owns full title in the intellectual property as well as representations regarding controversies.Crucial Factors for IP due diligence Extent of statutory protection IPRs enjoy Value of each IPR Level of risk infringement of third party rights and infringement by others. litigations. 2006 All Rights Reserved 33 . claims of infringement. and any other specific matters that are important to the buyer and the transaction. With respect to the agreement involving the acquisition. telecommunications. Technology Valuation-important considerations Size: Whether there is market for the product of technology Scale: scale of operation of technology is appropriate to that market Maturity: Whether technology is market proven or new Obsolescence: whether it is about to be replaced by new developments Environment adaptability: whether technology can be satisfactorily operated in transferee’s environments Appropriateness: Whether technology is appropriate for infrastructure-available power. title disputes. transport etc © Seth Associates.
pending actions against third parties Third party threatened. pending actions against Target Company Summary. General Comments Examine and evaluate opinion letter and cease and desist letters.general/misuse Inter-company licensing practices Internet use/licensing Nonuse Enforcement/Disputes Target Company threatened. Conclusions.ISSUES THAT NEED EXAMINATION WITH RESPECT TO TRADE AND SERVICE MARKS • • • • • • • • • • • • • • • • • • • • • • • • • • • • Definition of Rights Registered marks Pending applications Trademarks exploited by Target Company but not subject of registration Ownership Marks created by Target Company employees Marks created by independent contractors Marks assigned to Target Company by third parties Liens and other mortgages Third Party Rights Concurrent use and consent agreements Licenses from third parties Freedom to use-• Protection/Registration Status and scope of registered marks Status and scope of pending applications Non-registered marks (marketing/registrability) Proper use of markings Exploitation Inventory of products/services on or in connection with which marks are used Licensing practices. 2006 All Rights Reserved 34 . © Seth Associates.
2006 All Rights Reserved 35 . Court held transfer of tenancy rights under scheme of amalgamation was bad in law being made without consent of landlord.rent agreement specifically prohibited subletting without written consent of landlord . © Seth Associates. Case example: General radio and appliances Co ltd v MA Khader (1986) 60 com cas 1013-facts transferor company in amalgamation was tenant . or public policy provides otherwise or there exists a material adverse consequences to the other party. General principles of contract law provide that rights under agreements are presumed to be assignable unless the statute.LICENSING OF INTELLECTUAL PROPERTY Every merger and acquisition poses a Question: whether merging companies intellectual property license rights would remain intact pursuant to merger. Landlord instituted eviction proceedings against transferee. the contract. Similar position in law with respect to trademark and copyright licenses.
a pending patent application assigned to the company an invention disclosure from an engineer to company decision-makers for consideration as to whether to pursue patent protection. like. information maintained in notebooks and/or stored on a computer by any employee. 2006 All Rights Reserved 36 . © Seth Associates.Challenges of Valuing IP Assets in case of M&A Assets that may qualify as a company's IP may be easily overlooked. proprietary software source code developed inhouse.
Indeed. the value of an IP asset often changes over time.Challenges of Valuing IP Assets Valuing IP assets is often a difficult task because their true value may not be readily apparent The value of an IP asset may not be recognized in income received by the company. the full value of an IP asset is likely never recognized in income because much of the asset's value resides in the negative right to prevent others from doing something they would otherwise be permitted to do Valuing an IP asset is further complicated because such value is generally not stagnant.g.. 2006 All Rights Reserved 37 . annually) re-assess the value of its IP assets © Seth Associates. Rather. a company should periodically (e. Consequently.
some of which is readily identifiable and others of which are difficult to identify © Seth Associates.Challenges of Valuing IP Assets Contd. 2006 All Rights Reserved 38 . Consequently. If the company were to be acquired. a company may possess a vast amount of IP. some value would certainly be attributed to its pending patent applications as company "assets" in determining a fair purchase price for acquiring the company. The pending patent application is an asset representing a potentially enforceable right that may be conferred to the company in the future. If the company were to be acquired by another. no value may be attributed to the notebooks in determining a fair purchase price for acquiring the company because the notebook's content may be largely unknown.
Reorganising and structuring deals If all or most of the IP owned by the corporate seller is not assignable as a result of the contracts vesting ownership in the seller. then a stock purchase. may be preferable to an asset purchase. © Seth Associates. both parties are protected: the seller is not forced to make representations about assignability that are impossible to meet. in which the assignability of the assets is not important. In this case. 2006 All Rights Reserved 39 . and the purchaser is not forced to assume the risk of claims of infringement or the inability to enforce IP rights arising from the ineffectual transfer of rights.
management can use risk information revealed in the due diligence. • If mark is undergoing generalization and is becoming generic. reclaiming the mark from slipping to generic status would need to be considered. • Due diligence could highlight contingent risk which do not always arise from Intellectual Property law itself but may be significantly affected by product liability and contract law and other non Intellectual Property realms.Due Diligence for valuation helps build strategy If Intellectual Property asset is underplayed the plans for maximization would be discussed. • • If the Trademark has been maximized to the point that it has lost its cachet in the market place. © Seth Associates. • Certain events can devalue an Intellectual Property Asset -events in respect of IP could be adverse publicity or personal injury arising from a product. reclaiming may be considered. 2006 All Rights Reserved 40 . An essential part of the due diligence and valuation process accounts for the impact of product and company-related events on assets .
When multiple approaches are Cost approach applied a comparison and reconciliation of resulting value is possible.Methods for valuation of Intellectual Property The choice of approach will be determined primarily by the type of Intellectual Property asset is to be valued. Valuation Methods Market approach Income Approach Others © Seth Associates. the availability of information and the level of due diligence that the corporate is willing to take on. the circumstances of the specific transaction. 2006 All Rights Reserved 41 .
the © Seth Associates. Value of an asset or liability is the present value of future economic benefits or losses that can be reasonably anticipated to accrue to the owner of that asset or liability. at a particular time and in particular circumstances. 2006 All Rights Reserved 42 .Principles of Valuation The cardinal rule of commercial valuation is: value of something cannot be stated in the abstract. all that can be stated is the value of a thing in a particular place.
. i. Components of cost approach Cost of reproduction Cost of replacement Depreciation cost Original cost Book cost © Seth Associates.Cost based approach Based on the principle of substitution.e. 2006 All Rights Reserved 43 . value of an asset is estimated on the basis of cost to construct a similar asset at current prices.
adjust for time value of money Add an appropriate rate of return to calculate developer’s profit Disadvantage: it seeks to correlate cost with value. Caution: NOT ALL DEVELOPMENTS BASED ON INVENTIONS LEAD TO SUCCESSFUL PRODUCTS © Seth Associates.Cost approach Valuation Process Identify historical Costs of developing the intangible asset. 2006 All Rights Reserved 44 .
© Seth Associates.Market Based approach Estimates the value of an intangible asset based on market prices of comparable intangible assets that have been bought/sold or licensed between independent parties. 2006 All Rights Reserved 45 . and is similar to the Comparable Uncontrolled Price (CUP) method. Also referred to as the Comparable Uncontrolled Transaction (CUT) method.
assessment of fair market value An exchange of comparable products comparison with the sale value of similar assets There are various elements of comparison. sales or licensing statistics usually confidential. functional characteristics of intellectual property. the economic condition. physical characteristics of intellectual property. which should be given due importance while analyzing and comparing the transactions such as. © Seth Associates. public market. Requisites Market Based An active. Limitations: In practice difficult to find sufficiently comparable transactions-price information. the existence of any special term and the legal rights that have been transferred. the size of industry in which the intellectual property is transferred. 2006 All Rights Reserved 46 .
Income based approach Estimates the value of an intangible asset based on the expected income attributable to the intangible asset during its remaining economic life. 2006 All Rights Reserved 47 . Also known as ―Discounted cash flow analysis‖ © Seth Associates.
Essential Elements The amount of the income stream that can be generated by the property An assumption as to the duration of the income stream An assumption as to the costs and risks associated with the realization of the forecasted income © Seth Associates.Income based approach Contd.. 2006 All Rights Reserved 48 .
Valuation Process Forecast income and costs associated with using the property over the life of the property Compute Net Present Value of future cash flows (use appropriate discount rate reflecting risk of investment) Limitations Suitable where fair Financial projections can be made Estimating income Attributab to intangib its economic life..Income based approach Contd. 2006 All Rights Reserved . appropriat Discount ra 49 © Seth Associates.
Other Approaches Other Internationally accepted approaches include: Market Capitalization method Profit based methods Profit split method The Economic Benefit Approach © Seth Associates. 2006 All Rights Reserved 50 .
2006 All Rights Reserved 51 .Table shows how big the economic contribution made by brands to companies © Seth Associates.
Instances of Brand Valuation in M&A In 1988. Tangibl e Assets 12% Intangi ble Assets. UK-based GrandMet acquired the Pillsbury company. etc. GrandMet paid approximately $990 million (L608m) to acquire the Pillsbury brand name and its other branded properties (Green Giant.). Old ElPaso. 88% © Seth Associates. It was estimated that 88% of the price it paid consisted of "goodwill" i. Häagen-Dazs.e. 2006 All Rights Reserved 52 ..
. Rights Reserved Volkswa gen BMW 53 .Instances of Brand Valuation in M&A Volkswagen. bought the $800 assets of the Rolls-Royce $700 automobile corporation for $780m against a net $600 tangible asset value of $500 US$250 million $400 But it somehow did not include the brand in the $300 deal. $200 The rights to use the Rolls$100 Royce trademark were subsequently purchased $0 by rival BMW for $65m Assets and many analysts believe that BMW got the better Associates.. 2006 All © Seth deal.
and worse still.Aligning the IP being acquired against the business being acquired The intellectual property to be acquired should be considered by reference to what is actually being used or required to be used in conducting the business to be acquired and not in a theoretical vacuum. For example. registered trade mark. patent application. 2006 All Rights Reserved 54 . © Seth Associates. an extensive portfolio of granted patents may be of no or little value to a business if none or very few of the products made or processes used in the business are referrable to those patents. if those products or processes infringe third party rights The intellectual property to be acquired should be properly categorised by substantive type—eg granted patent. the obstacles to such transfer that need to be overcome. as well as the warranties that may be required. by third party interests involved in that intellectual property and by disputes related to that intellectual property. These factors will provide the foundation to identifying the necessary steps to effect a proper transfer of title. by its ownership. common law trade mark etc.
so check that IP renewals are up to date. Similarly. 2006 All Rights Reserved 55 . the business may be less valuable if the trade mark registration does not cover the appropriate classes of goods or services. design and trade mark registers to ensure that IP protection is available in all of the key markets of the business. © Seth Associates.Aligning the IP being acquired against the business being acquired IP your company is acquiring will allow it to benefit from the transaction in the way it expects. or if the key product infringes another person’s patent. if your company is buying a business to use its trade mark. For example. Lapsed patents and designs are of no value either. Search all relevant local and foreign patent. a business with a number of patents may not be as valuable as it appears if the key product manufactured by the business is not covered by those patents.
Means of acquiring IP assets Mergers & Acquisitions Transfer documents Supplemental Closing Documents Asset Sale Purchase Agreement Stock Sale © Seth Associates. 2006 All Rights Reserved 56 .
Share purchases & stock purchases Share purchases will transfer the entire rights in the intellectual property by operation of law. © Seth Associates. If the acquisition is structured as a stock purchase. very often they will be separately transferred to a holding company and either licensed back to the operating company or become the subject of a subsequent sale to the ultimate purchaser. documents which transfer the stock will allow the buyer to indirectly become the owner of the assets. documents transferring the assets generally are not necessary. In the context of intellectual property assets. instead. 2006 All Rights Reserved 57 .
Purchase of shares will not affect distinct property rights in intangible assets or other intellectual property to be properly transferred. ownership of trademarks and other intellectual property still remains with the acquired company. 2006 All Rights Reserved 58 . although a separate agreement is usually necessary to underscore the parties’ intentions. © Seth Associates.Stock purchases In the context of a stock purchase acquisition.
the intellectual property assets will be either specifically mentioned in the acquisition agreement or become the subject of a separate bill of sale. very often intellectual property assets are the subject of a separate agreement in light of the fact that they require recordal of the new owner in the respective jurisdictions in which they are validly owned and used. 2006 All Rights Reserved 59 . the forms and requirements for valid transfers differ from country to country and become a matter of public record © Seth Associates.Asset Purchase If the transaction is structured as an asset purchase. Furthermore. However.
the intent to transfer trademarks and the goodwill associated therewith is presumed. rather.Sale of assets If a business is sold as a going concern. even though not expressly provided for. 2006 All Rights Reserved 60 . ownership of the intangible assets will remain with the parent corporation unless the underlying agreement expressly provides for transfer to the subsidiary © Seth Associates. An exception to this concept lies in the context of transactions between parent corporations and their wholly-owned subsidiaries. Asset-based purchases in this context will not automatically include intellectual property rights.
the Acquisition Agreement or delivered as a post-closing obligation.Transfer of Domain Names Domain names Domain names perform the function of a trademark if it denotes the source or origin of goods/services. © Seth Associates. The latter two documents may be set forth as exhibits to . the Transfer of ownership Acquisition Agreement. 2006 All Rights Reserved 61 Documents . a document issued by the relevant domain name registry attesting to the transfer (if such change is not done electronically) and an assignment agreement. Ownership of domain names can be transferred in M&A The transfer of ownership of a domain name should consist of no less than three documents.
2006 All Rights Reserved 62 . In addition to stating the intentions of the parties and transferring the domain name itself. The agreement should further prohibit the seller from registering or using a similar or related domain name © Seth Associates. together with indemnity provisions in favor of the buyer. copyright and other intellectual property rights related to the domain name should be should be subject to the transfer as well.Transfer of domain names The Acquisition Agreement should make certain to address the intersection to domain names and trademark law. all common law trademark. Representations and warranties to the effect that the seller is the sole owner and that the subject domain name is not subject to any claims of infringement or other claims or actions should be made.
the buyer is responsible for filing any required documents with the relevant domain name registry and this should be explicitly set forth in the Purchase Agreement. © Seth Associates.Transfer of domain names Specific reference to the domain name registrar should be made with an affirmative obligation on both the buyer and seller to execute any documents it requires. In most instances. 2006 All Rights Reserved 63 .
transferring all the intellectual property to a separate IP holding company while transferring all tangible assets to a separate operating company. will cause problems if common law trade marks are involved. 2006 All Rights Reserved 64 . The lead IP lawyer must be alert to the consequences arising from any particular structure jeopardising intellectual property rights. © Seth Associates. because common law trade marks cannot be validly assigned separately from the goodwill attaching to the business assets sold.Tax considerations governing the structure of the deal The structuring of an acquisition is frequently governed by tax considerations. For example.
it may choose not to simply obtain record title to intellectual property assets received in a merger or acquisition. © Seth Associates. this can be achieved in the most tax efficient manner by placing ownership of the intangible assets in a holding company which then licenses back the assets for use by the operating company. 2006 All Rights Reserved 65 . it may choose to sell its newly acquired intangible assets to a third party (which it may or may not own a substantial portion of the shares) and receive a license to use same.Tax considerations… Depending upon the scope of the business activities of the purchaser. Very often. rather.
costs includes patent or trademark registration fees. legal costs and salaries and equipment costs for R&D activities IPR holders are required to get registered with the appropriate authority under service tax rule for providing IP Services for consideration of Royalty. 10th September 2004. royalties.f.Tax considerations Entities which create or acquire IP assets has the ability to claim a tax deduction for their costs IPR were brought under the service tax law w. and 80IB of the IT Act.24 % of the service tax) on the gross amount charged from the receiver Not available for the tax year in which amalgamation / demerger take place © Seth Associates. 80IA.e. These incentives are thereafter allowed to the amalgamating /resulting company. 66 .24% (12% service tax + educational cess @ of . liable to pay service tax @ 12. 2006 All Rights Reserved ss 10A 10B.
this lessens the risk profile for the acquirer. The deal should not be viewed as complete until recordal of the transfer of title has been effected © Seth Associates. and as a consequence.Foreign laws impacting on IP It is not uncommon in present day acquisitions for rights in intellectual property to arise in various jurisdictions—eg foreign registered trade marks. In such a context. 2006 All Rights Reserved 67 . Adopting such an approach means that issues are more likely to be dealt with on their merits. two factors are particularly important: first. granted patents etc—or in the case of licences. to begin with the presumption that the laws in those jurisdictions will be different to Indian law on intellectual property issues fundamental to the acquisition— eg US law may treat the assignment of intellectual property licenses by licensees differently to Indian law. for those to be governed by the laws of jurisdictions outside India. to have access to a network of good quality intellectual property counsel to address issues arising from such laws and second.
the new owner may not be able to prosecute infringements. Necessity for Prompt Recordal : The intellectual property rights of the acquired company need to be transferred into the name of the new owner in each jurisdiction where such rights exist. Second. First. © Seth Associates. a misconception can arise in the marketplace as to the identity of the actual owner. if a change of ownership is not promptly recorded. file oppositions or attend to renewals or annuity payments.WORLDWIDE RECORDAL OF INTELLECTUAL PROPERTY RIGHTS. 2006 All Rights Reserved 68 . leading to a possible loss of rights where a trademark no longer functions as a true indication of origin.
Fifth. 2006 All Rights Reserved 69 . fines and/or penalties may be assessed for late recordal of a transfer. Fourth.Necessity for Prompt Recordal Third. © Seth Associates. license recordals and registered user entries will no longer be current and may affect the validity of the use by a licensee and/or governmental approval for foreign exchange authorizations for remission of royalties. the failure or delay in recording a transfer of ownership may result in a possible loss of royalties.
in the event an ―equitable transfer‖ occurs without the requisite official change of ―record ownership‖ at the relevant patent and trademark offices throughout the world.Necessity for Prompt Recordal Finally. licensing and/or use of the intellectual property rights. sale. 2006 All Rights Reserved 70 . the new owner will encounter enormous difficulties when confronted with the maintenance. hypothecation. © Seth Associates. enforcement.
2006 All Rights Reserved 71 .THE FINAL WORD… It is anticipated that intellectual property will be the dominant force in future commercial transactions comprising tomorrow’s mergers and acquisitions! © Seth Associates.