What You Need to Know about Purchasing an Intellectual Property Portfolio

In this insightful feature, Amit Aswal tells us what we need to know when considering purchasing an intellectual property portfolio. What should you be wary of? Amit reveals all.

How would you advise clients when they are exploring the possible idea of purchasing an already existing intellectual property portfolio?

With evolving business dynamics, intellectual property owners are often under business compulsion to purchase portfolios. Most of such portfolios are spread over various jurisdictions covering intellectual protection in several continents, making intellectual property strategic consultancies tasks an extremely demanding one. In matters of intellectual property transactions, including purchasing, performing an informative and conclusive due diligence is of utmost importance.

The due diligence should not only reflect the nature and legal status of intellectual assets, but it must also be conclusive of fact findings which could influence transactional negotiations like purchase cost and royalty calculations. Obviously, not all assets in the intellectual property portfolio would align with purchaser’s business strategies, thus the due diligence should result in segregation of assets in order of relevancy. It is important to weigh such segregation in terms of offensive and defensive business strategies, while ensuring there is an absence of similar technologies that may either be in development, on the market or in the likelihood of being invented and designed. Often, post purchase, intellectual property owners face situations wherein with the due passage of time, the original objective of purchase shifts from defensive to offensive needs. Thus, it is critical to ascertain non-expired terms and enforceability of intellectual assets.

The clients must be conscious of a poorly drafted and executed purchase agreement.

It is equally important to weigh the intellectual assets on parameters concerning freedom to operate (FTO) i.e. to ensure that there are no other restrictions on use of the assets and that no third parties’ rights are involved; basically, the implementation of a purchased intellectual property portfolio should not result in the risk of infringement. Alongside, an analysis in terms of the intellectual, technological and economic landscape of a competitors’ intellectual portfolio must be done to ascertain strategic benefits and worthiness of the purchase. Alternatively, as a prudent measure, intellectual property assets can be bought by the acquisition of business owning the assets. Once acquired, immediately arrange to record the transfer in ownership with various intellectual property offices. Moreover, the due diligence must be done under the supervision of an experienced attorney who has the knowledge and experience in contract (purchase/licence agreement) drafting, monitoring and analysing possible implications drawn out from similar transactions.

Can you share more on what the client should be wary of?

The clients must be conscious of a poorly drafted and executed purchase agreement. An agreement silent on post transactional liabilities and risks can cost more than the original price of the portfolio purchase. The agreement should act as a controlling and defining factor for possible future repercussions/breach and benefits anticipated from an intellectual property portfolio purchase, besides ensuring non-divergence in matters of infringement for at least a certain duration post purchase. Obviously, the agreement should be extremely stringent on compliance, enforcement, infringement and exclusivity. Of course, other parameters for the agreement would be subject to the nature of the purchase being mutually exclusive or non-exclusive. Agreement drafting should begin during initial conversations of a possible transaction, thereby ensuring confidentiality and compliance issues during and post closure of purchase. Moreover, one single agreement may not cover every dimension and scope of a portfolio purchase. Therefore, while formulating a portfolio of purchase agreements, such terms and conditions should be incorporated which ensure coverage and validity of purchase over multiple countries.

Most intellectual property portfolio purchases of intellectual assets go wrong on valuation and are usually overvalued.

Particular emphasis should be placed on the wording and scope of agreement terms covering instances of cross border enforceability, country specific contract governing laws and procedures and site of alternative dispute resolution centres and such other compensatory channels. In specific, a particular agreement must be executed relating to payment of renewals with the demand to have all intellectual assets renewed for a term of at least two years, prior to execution of an agreement to purchase.  A review of agreements executed by the portfolio owner must be done to confirm the legitimate title, right and enjoyment of claimed intellectual assets in absolute terms. A review must be done of the already existing licence and restriction agreements. Some countries regulate intellectual property agreements by specific parliamentary law and thus assistance must be taken from country specific local attorneys to ensure enforceability of assignments and agreements relating to the portfolio.

Legitimate ownership and enforceability of intellectual assets to be purchased must be ascertained before making a purchase.

What can go wrong, when trying to make the purchase of an intellectual property portfolio?

Most intellectual property portfolio purchases of intellectual assets go wrong on valuation and are usually overvalued. In particular, a purchase covering various jurisdictions with non-renewed assets can result in major enforceability issues. Obviously, such purchases are a financial burden with additional costs to be incurred in restoring and negotiating rights. Moreover, the government fees to be paid in various jurisdictions, attorney and disbursement expenses, add further cost.

Legitimate ownership and enforceability of intellectual assets to be purchased must be ascertained before making a purchase. The purchase should not result in any potential loss or impairment of intellectual assets owned by the purchaser. It must be ascertained that the purchase is in no way a violation of already existing licenses or co-existence agreements to which the purchaser is already a party. Obviously, the purchaser must ensure to receive ownership and right to all circumventing agreements relating to the asset portfolio.

Most startups, with almost no budget for research and development, tend to seek a licence as mean to secure immediate intellectual property protection besides a right to protected technology.

In what instances is licensing an intellectual property portfolio a more viable option?

Licensing an intellectual property portfolio is always a great option when considering immediate commercial exploitation in multiple jurisdictions without worrying about enforceability and maintenance of intellectual assets. With limited Research and Development funds, licensing is a great way to scale up operations and focus on product development.  These organisations can derive great benefits by relying on already existing and enforceable intellectual property. Also, one may consider for a time limited licence to save cost and alignment with business strategies. If negotiated well, restricted licence rights can costs less than the cost associated with creating and maintaining intellectual assets. Also, depending on budget and business, a licence can be taken on exclusive and non-exclusive terms.  Obviously, a licence can be used for both offensive and defensive purposes.

Most startups, with almost no budget for research and development, tend to seek a licence as mean to secure immediate intellectual property protection besides a right to protected technology. Depending on the nature of intellectual property, licences can assist, not just in technology advancements, but assist in brand positioning. Additionally, a licence can be exploited to enter new markets entry to which may otherwise result in infringement suits.

Amit Aswal
Managing Partner
anovIP, Level 3, 45/1, Corner Market,
Malviya Nagar, New Delhi-110017, INDIA
(+91) 1141 8355 50
WWW.ANOVIP.COM

More about Amit and his firm

Mr Amit Aswal is the Founder and Managing Partner of AnovIP, an intellectual property practice headquartered in India which houses professional staff of over 150 experienced attorneys, agents, associates, technical consultants/experts, paralegals, and support staff. Mr Aswal a natural leader with expertise in a plethora of intellectual property focused services such as: filing, prosecution, creation, management and monetization of intellectual assets; mitigation of potential intellectual property infringement lawsuits; intellectual property portfolio management; intellectual property valuation, and many more. His success is chalked out of his proficiency in negotiating and closing complex IP transactions – a proficiency that stems from his distinct understanding of technical, legal and economic characteristics of intellectual property and a keen eye over changing market trends. Mr Aswal’s team renders gamut of intellectual property services through his global offices located across South Asia including but not limited to: India, Sri Lanka, Malaysia, Bangladesh, Philippines, Singapore, Thailand, Maldives and Nepal.

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