Intellectual Property Acquisition, Licensing, and Disposition: Protecting Your Company’s Most Valuable Assets

Posted by: kevensteinberg
Category: Business Law, Employment Law

Intellectual property (IP) assets are among the most valuable items companies have. Acquiring, licensing, and disposing of IP can be a very fraught process for many companies that are unfamiliar with the legal process.

Many companies today do not fully appreciate the value of their IP, as IP can be even more valuable than physical property in many cases. Anybody dealing with an IP headache in California will want to work with a Los Angeles small business attorney so they can achieve all of their goals.

Acquiring IP

When a company is negotiating a merger or acquisition agreement, the acquiring company needs to understand the chain of title and scope of the IP that will be merged or acquired as well as the amount of freedom the company will have to use the products and services of a merged or acquired company. The thoroughness of IP due diligence will play an important role in safely negotiating around any possible pitfalls. 

With regards to merger and acquisition agreements, definitions, representations, and warranties can be extensively negotiated. The definitions section of a merger or acquisition agreement will be critical to the agreement because it will set the scope of the assets of the merged or acquired entity. 

The definitions that often require the most thought and negotiation will be products and intellectual property. An acquiring party will want the definition of products to include every product it believes to be owned by a company to be merged or acquired. 

A seller will want the definition to be restricted to only the products it does not want to retain. The degree of specificity will be important where a company to be merged or acquired is a subsidiary of a corporation that plans to carry on similar lines of business as a merged or acquired company postsale. 

A definition for intellectual property should include a list of all trade secrets, registered and unregistered trademarks, specific patents, patent applications, confidential information, and copyrights owned by a merged or acquired company, as well as any relevant regulatory clearances or approvals. The definition should at least include all of the IP necessary to operate a merged or acquired company. 

Licensing IP

An IP licensing agreement typically happens between the IP rights owner or licensor and a person authorized to use the rights or a licensee in exchange for monetary value in the form of fees or royalties, or possibly both. A licensor will typically have their IP rights valued before entering into a license negotiation to ensure the terms of a license reflect a sharing of risk and rewards associated with exploiting IP rights. 

The two parties involved will agree on the terms and conditions through negotiation, with an outcome being dependent on each side’s bargaining power, the value of the commercial opportunity, and the profits that IP could have. A licensor will always be the owner of licensed IP, and a license may cover several IP rights, including patents and design rights as well as trademarks. 

Factors that need to be considered when licensing IP include exclusivity that often involves an upfront fee, the market the IP will be used in, the relevant territory, enforcement of IP rights and ongoing payment of IP maintenance and protection fees, the time period that may be linked to the expiration of a patent or the useful life of the IP assets, background and foreground IP, rights to future developments, any services or support provided by licensor along with assets, and rights to assign, sublicense, or terminate a license.

An IP licensing agreement can be beneficial because it may offer easier access for products or services in new markets or geographical territories, allow commercial risks of entering new markets to be shared, create additional revenue streams, increase market share, gain access to local expertise in a target market, broaden a company’s competitive advantage, increase collaboration opportunities, and provide an opportunity to minimize capital investment and risk when entering a new market. Common kinds of IP assets subject to licensing agreements include trademarks, patents, registered product designs, copyrights, and confidential information.

Disposing IP

Ownership of IP assets needs to be confirmed before any inventor or creator considers buying IP. An original inventor or creator frequently does not own the rights to inventions or creative works by themselves, as other joint inventors could be listed on a patent or multiple authors are registered as creating copyrighted works. 

Joint inventors or creators could have reached an agreement regarding what percentage of rights each person owns, and it is not necessarily an equal split in all cases. IP may also have been assigned from an original inventor or creator to another person or entity, thus transferring all rights. 

All IP assignments will need to be carefully reviewed by attorneys. It is also possible that an invention or creative work belongs solely to an employer. 

Under Title 17 U.S. Code § 101, works-for-hire are created by employees as part of their jobs, and employers are then considered the legal authors. Common law trademark rights vest on the first use of a trademark, even when a person did not register a trademark with the United States Patent and Trademark Office (USPTO). 

It is further important to understand that no IP rights are ever indefinite, meaning that the remaining life of an asset can be an important factor. It can be beneficial to look at the value placed on IP in any past licensing.

Contact Our Los Angeles Small Business Attorney

If you need assistance with acquiring, licensing, or disposing of IP in California, you are going to want to be sure you have legal assistance. Steinberg Law understands how complicated these kinds of issues can be but we will put in the work to ensure that you are able to make the right choices. 

Our firm has helped scores of clients protect their IP rights in various state and federal matters. You can call (818) 855-1103 or contact our Los Angeles small business attorney online to take advantage of a free consultation.

Author: kevensteinberg