Your Intellectual Property Can Be Part of What a Buyer Is Acquiring
When business owners prepare to sell, they usually focus on revenue, profitability, customer relationships, equipment, real estate, and other obvious assets. Intellectual property can receive less attention, even though it may represent a significant part of what makes a business valuable.
A company's intellectual property portfolio can include trademarks, copyrights, patents, trade secrets, proprietary materials, and contractual rights to use intellectual property owned by someone else.
For a buyer, these assets can help clarify exactly what comes with the business after closing. For a seller, they can affect due diligence, negotiations, and the overall value attributed to the company.
That makes intellectual property an important part of preparing for a merger or acquisition.
What Intellectual Property Might Be Included in a Business Sale?
The intellectual property associated with a business can take many forms. Some assets may be registered with government agencies, while others exist through contracts, ownership rights, or the way the business has developed and used them.
Common categories include:
- Trademarks. Business names, logos, slogans, product names, and other source-identifying marks may be among the assets transferred as part of a transaction.
- Copyrights. Websites, photographs, marketing materials, software, written content, graphics, videos, and other original works may be protected by copyright.
- Patents. A company's patented inventions and related patent rights can be particularly important when technology, manufacturing, or product development drives the business.
- Licensing Agreements. A business may depend on licenses allowing it to use software, technology, brands, content, or other intellectual property owned by third parties.
- Proprietary Materials. Internal processes, technical materials, databases, designs, and other commercially valuable information may also need to be identified and addressed during a transaction.
The specific intellectual property involved will vary from business to business. Identifying these assets early can make the transaction process more organized.
Trademark Ownership Can Affect the Deal
A company's brand may be one of its most recognizable assets. But before a transaction closes, a buyer will want to know that the business actually owns the trademarks it is representing as part of the sale.
That can become more complicated than expected.
For example, a company may use a logo or business name for years without having a clear record of who owns the corresponding trademark rights. There may also be multiple entities involved in ownership, particularly when a business has subsidiaries, related companies, founders, or holding companies.
Trademark registrations should therefore be reviewed as part of transaction preparation.
Issues that may need attention include:
- Ownership Records. Does the entity selling the business actually own the relevant trademarks?
- Registration Details. Are registrations current, and do they cover the goods or services the business actually provides?
- Related Marks. Are important variations of the brand protected, or are there gaps in the portfolio?
- Assignments. Have prior acquisitions, reorganizations, or ownership changes been properly documented?
- Third-Party Rights. Are there coexistence agreements, licenses, or other arrangements affecting the trademarks?
Resolving ownership questions before a buyer raises them can make due diligence substantially easier.
Copyright Assignments Can Become Important During Due Diligence
Copyright ownership can present a different issue.
Businesses frequently rely on creative work produced by employees, independent contractors, marketing agencies, developers, photographers, designers, or other outside parties. Simply paying someone to create a work does not necessarily answer every question about ownership and transfer of copyright rights.
A buyer may therefore want to see the agreements establishing that the business has the rights it claims to own.
Potential areas for review include:
- Website Content. Who created and owns the company's website copy, photographs, graphics, and other content?
- Software & Code. Were developers or outside contractors engaged to create proprietary software or other technology?
- Marketing Materials. Are copyrights in advertisements, videos, illustrations, and other creative materials properly assigned?
- Employee Agreements. Do employment agreements address intellectual property created within the scope of employment?
- Contractor Agreements. Do independent-contractor agreements clearly address ownership and assignment of relevant work?
If important assets were created by third parties without clear assignment language, that issue may surface during the buyer's legal due diligence.
Patent Portfolios Can Influence a Transaction
For technology-driven and product-focused companies, patents can represent a substantial part of the business's value.
A buyer may want to understand not only which patents the company owns, but also what those patents cover, where they are registered, whether maintenance requirements have been satisfied, and whether there are pending applications or related intellectual property rights.
The quality of a patent portfolio can matter as much as its size.
A portfolio may include patents that are commercially important to the company's products, patents covering future product development, or patents that provide strategic protection within a particular market. Understanding those distinctions can help both sides evaluate what is actually being transferred.
Licensing Agreements May Affect What a Buyer Can Use
Not every valuable piece of intellectual property is owned outright by the business.
A company may rely on licensing agreements for software, technology, branded products, photographs, content, patents, or other intellectual property. Those agreements can become particularly important when ownership of the business changes.
A buyer may need to determine whether a license automatically transfers to a new owner or requires consent from the licensor.
Questions may include:
- Transfer Rights. Does the agreement permit assignment to a buyer?
- Change-of-Control Provisions. Does a sale or ownership change trigger special requirements?
- Term & Renewal. How long does the business have the right to use the licensed property?
- Exclusivity. Is the license exclusive, or can competitors obtain similar rights?
- Termination Rights. Can the agreement be terminated following a transaction or other change in ownership?
A license that appears valuable on paper may have limitations that become important once a transaction is under consideration.
Intellectual Property Is Part of Due Diligence
During an acquisition, the buyer's legal and financial teams typically examine the business's assets, liabilities, contracts, operations, and potential risks.
Intellectual property can be part of that review.
The buyer may want to confirm that the seller owns the assets it claims to own, that registrations are valid and properly maintained, and that the business has the contractual rights necessary to continue using important intellectual property after closing.
Potential disputes can also become relevant. Existing infringement claims, challenges to ownership, licensing disputes, or allegations that the company's products or services infringe someone else's intellectual property may affect the transaction.
For sellers, identifying these issues before entering formal due diligence can provide an opportunity to address problems rather than discovering them for the first time during negotiations.
A Clean IP Portfolio Can Make a Business Easier to Evaluate
Intellectual property does not automatically increase a company's sale price. Its value depends on factors such as its commercial importance, enforceability, market position, ownership, and relationship to the company's revenue and operations.
Still, well-documented intellectual property can make it easier for a buyer to understand what it is purchasing.
A strong portfolio may include clearly documented trademark ownership, properly assigned copyrights, organized patent records, and licensing agreements with well-defined rights. When those pieces are difficult to verify, a buyer may have more questions about the assets and risks associated with the transaction.
For sellers, that is one reason an intellectual property review can be worthwhile well before a deal is on the table.
Preparing Your IP Before Selling Your Business
Business owners do not necessarily have to wait until they receive an acquisition offer to review their intellectual property.
Taking inventory of the company's IP can reveal ownership gaps, outdated registrations, missing assignments, and contractual restrictions that may be easier to address before negotiations begin.
A pre-sale review may include:
- Inventory the Portfolio. Identify the trademarks, copyrights, patents, licenses, and other intellectual property connected to the business.
- Confirm Ownership. Review corporate records, registrations, assignments, employment agreements, and contractor agreements to determine who owns the relevant rights.
- Review Agreements. Identify licensing, distribution, technology, and other agreements that contain intellectual property rights or restrictions.
- Check for Gaps. Determine whether important assets are unregistered, improperly documented, or dependent on rights held by another party.
- Organize Records. Maintain registrations, renewal information, assignments, licenses, and related documentation in a form that can be provided during due diligence.
Addressing these issues early can help prevent avoidable complications once a buyer begins examining the company.
Protecting the Value of What You Have Built
Selling a business involves more than putting a price on its revenue and physical assets. The name customers recognize, the technology behind a product, the content that drives a website, and the rights that allow the company to use valuable third-party technology can all form part of the business being transferred.
Intellectual property should therefore be considered alongside the other assets involved in a merger or acquisition. At M. Ross & Associates, LLC, we help businesses evaluate and protect intellectual property as they prepare for transactions and other major changes in ownership. Reviewing trademark ownership, copyright assignments, patent portfolios, licensing agreements, and related records before due diligence begins can help identify issues that may affect a transaction.
If you are considering selling your business or preparing for a potential acquisition, call (201) 897-4942 or contact us online to discuss your intellectual property and transaction needs.