Intellectual rights and wrongs

February 21, 2011 8:39 am Published by

As our economy becomes ever more dependent on knowledge-based industries, intellectual property rights may constitute an important asset of a business and should be fully considered in any business sale and purchase.

Intellectual property rights (‘IPRs’),confer on their owners a raft of rights which prevents others doing certain things without the owner’s consent, usually given by way of licensing.

Some IPRs are registerable and their value is at risk unless ownership is duly lodged at the appropriate registry. These include patents, registered trademarks and registered designs. On a sale of business assets, the transfer of such IPRs needs to be promptly registered, since any subsequent buyer of those rights, acting in good faith and without knowledge of the earlier sale, will buy free of it. Where banks are assisting with funding for an assets purchase by a limited company which includes IPRs, their security instruments need to be recorded both at the relevant IPR register and at Companies House.

Unregistered IPRs, including copyright, moral rights , know-how and confidential information, are not capable of registration but, like registered IPRs, should be transferred in writing along with other business assets in the asset purchase agreement.

Appropriate due diligence is needed to find out what IPRs a seller actually owns and how transferable these really are. The retention of key employees of the seller, who have a working knowledge of a product or process may be more important than the registered IPR itself. Where the seller is retaining some intellectual property rights, it may be necessary to have a licence back of some of those rights on completion. Where third parties, such as directors of the selling company, may have an interest in any of the IPRs, they should be required to join in the sale agreement in order to transfer or waive that interest.

Any buyer of IPRs should seek an assignment of those rights with full title guarantee and, ideally, an agreed form of the transfer document attached to the sale agreement. It should also insist on confirmation that the seller has sole ownership of all rights in the intellectual property and that the seller will do all it reasonably can, at its own cost, to give the buyer the title it purports to give. The sale document should also include an assignment of the right to sue for infringements by 3rd parties and the right to retain monies owing in respect of such infringements.

Generally, it is vital to remember that these most intangible of business assets will not transfer across to a new owner automatically. Their existence, ownership and value need to be identified, evaluated and assigned with appropriate care and precision.

The above is general comment only and individual advice should be taken.

For more detailed information please contact Andrew Fleming on 01473 230033 or email arf@blockslegal.co.uk

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This post was written by Andrew