IPR Issues in M&A

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IPR Issues in M & A

More Co’s going for inorganic growth

Seek to exploit existing core
competencies & build new ones for
future
By seeking M & A route

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 Intellectual Properties
Patents

Trade Trademarks
Secrets

Plant
Breeder’s Copyrights
Rights

Industrial Geographical Indications

Design
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 Modern Scenario
To include software, domain names & business
processes when they can be proven to be
innovative & original.
Customer intelligence & Business intelligence
may also be considered IP (in US)
Depending on its value to business in terms of
competition &
Its necessity to the basic business processes

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 Illustration
UK based GRANDMET Acquired
Pillsbury Co. (1988)
Price - $990 Million
88% - Goodwill - Brand Name
12 % - Tangible assets
Volkswagen - Bought Rolls Royce -
Tangible asset - $250 Million
Intangible Asset - $ 780 Million

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 10 Most Valuable Trademarks (Forbes)
Name of the Co. Value of the Trade Mark Market capitalization
Google $ 44 Billion / 27% of $ 164 Billion
Firm’s overall value
Microsoft $ 42.8 Billion $ 204 Billion
Wal-Mart $ 36.2 Billion $ 184 Billion
IBM $ 36.2 Billion $ 199 Billion
Vodafone $ 30.7 Billion $ 138 Billion
Bank of America $ 30.6 Nillion $ 109 Billion
GE $ 30.5 Billion $ 197 Billion
Apple $ 29.5 Billion $ 307 Billion
Wells Fargo $ 28.9 Billion $ 143 Billion
AT&T $ 28.9 Billion $ 182 Billion
Value of Intangible assets

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 Transfer of IPR M & A

Transferor Transferee
Company IPR Company

Acquiring IPR Target

Company Company
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 IP Strategy
 Ownership

Enforcement Protection

Exploitation
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 Factors to be considered
Extent of Statutory Protection
Value of each IP
As a Whole

Separately

 Risk Level
Infringement of 3rd
Party Rights
Infringement by others
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 Management Factors
Size  Market for the product (Technology)

Scale  Is it appropriate to that market?

Stand in the Proven / new / requires further development

market
 Dying out - About to be replaced by new
development / end of the life cycle
Obsolescence  Commercial benefit is limited / reduced in
revenue generation
Technology operatable in the
Environment
transferee/acquirer’s environment
In terms of available power supply,
Suitability telecommunication, transport, waste
disposal etc 11
 IP Ignored ?
Lack of
awareness

Enforcement of IPR That it could not

-Time consuming & be valued –
Expensive (always to (MYTH!!!)
be vigilant!!!)

Time constraint / Under-estimation

required for grant of of its importance
IP

Costing of
IP
Dr. Dayananda Murthy C P 12
 Due Diligence Process
Purpose - Know about IP held by the Co.
& its true value
Pre-Due Diligence - Starts with letter of intent /
MOU with confidentiality agreement between
Buyer & Target Co.
DD Conducted at three levels:
Personal interviews
Document review
Independent investigation

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 Identification of IP Assets
Acquirer should obtain the following documents and information as
a part of its IP DD.

Are any of the intellectual

Review of limitation on property assets owned
the Target’s Intellectual jointly with one or more
Property Assets. third parties?
Some Important Aspects &
Questions

Are there any royalty

Are the intellectual
obligations associated property licenses
with any intellectual assignable by Target?
property licenses?
 Importance of IP DD
Investigating –
Party’s ownership
Right to use
Right to stop others using IP
Vital information – Specific to future benefits
Economic life cycle
Ownership rights
Limitations of the asset
DD is a pre-requisite to the valuation process
regardless of the methodology used.
All affecting Final value
of IP 15
 DD Should reveal
Owner of IP (WHO?)

Rights are valid/transferable/enforceable

Any limitation/restriction/agreement-preventing of
granting rights to others
Registration of IP at proper office

Shortcoming/defaults on payment

Litigation- PAST-PENDING-POTENTIAL

Encumbrances
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 Independent Investigations:
• Check at Indian Registries of IP
• Other countries filings
• Check - PCT/WIPO websites
• Assignment records/maintenance
fee/annuity records for patents
• Litigation/Prosecution files
• If Listed Company- SEBI filings
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 Caution !!!
Anti-assignment Sub-licenses
Silence on assignment Termination
Covenants not to sue
Non-compete
Automatic transfer of
Agreement
rights
Government licenses Unusual jurisdiction

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 Sample Clause
 “Upon the coming into effect of this scheme of with
effect from the appointed date
 The transferor Co. shall stand amalgamated with the
transferee Co. as provided in the scheme, & pursuant
to the provisions of SS 230 – 232, 2013 (SS. 391 & 394)
& other applicable provisions of the Act,
 All the assets & debts outstanding, credits, liabilities,
duties & obligations whatsoever concerning the
transferor Co.
 Including the IP but not limited to the entire
undertaking of the transferor Co. stand transferred to
& vested in & / or deemed to & stand transferred to &
vested in the transferee Co. as under”.

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Every M & A transaction poses the question
Whether the merging co’s IP license right
would remain intact pursuant to the
merger?
General principles of Contract law provide
that – Rights are presumed to be
assignable
unless
The statute
Contract
Public policy
There exists material adverse consequences to
the other party
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 Interpretation?
Legislative intent assumes primary importance -
parties should try and ascertain legislative intent
with regard to assignment/license of IPR
Parties - Required to be ascertained in the light
of the licensing agreement - Including whether
the license is expressly non-transferable…
Equitable consideration – determining the intent
of the parties. May refuse if it would adversely
affect the commercial interest of the licensor.
Ill- The competitor of the licensor will become
its licensee

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 In Case of Acquisition
Acquiring Co. would generally have the right to
use the existing IPR
If IPR is owned by shareholder? (e.g. Trade
name)
Does not automatically stand transferred to the
acquirer.
Acquirer may use IPR under license from the
shareholder
Selling shareholder may transfer/assign the
whole/part of IPR to the acquirer.

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 Review of Agreements and IP Litigation
 Documents which are customarily reviewed as a part of IP
due diligence includes such as all
 “license in” agreements for technology which is used by the
Target in the course of its business,
 Distribution & sales representative agreement
 Agreements with third party contractors etc. can be
reviewed by Due Diligence Team/Firm.
 Acquirer will want the Target to - Identify all litigation
brought by or against
 Target during the past five years (generally),
 whether currently pending or previously disposed of
 Any outstanding claims related to Target’s IP assets
 Any of the IP agreements identified by Target.
 Can also get copies of any outstanding Judgment, Decrees
or Settlement Agreements to which the Target is party.
 Trademark
• Sec. 54 - Does not permit the registered user to
further license or to transfer the permission or
authorisation to his assigns
• Unless the same is expressly provided in the
license agreement entered into with the owner of
IP.
• Transfer/transmission may be permitted where
licensor himself assents to such transfer –
subsequent to a merger
• A non-exclusive licenses - Licensor may end up
competing with its own licenses in the market.
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 Copyright?
• Copyright Act, 1957 does not contain an
express provision barring the licensee from
transferring the right in the license.
• Transfer of a license may be permitted
where the licensor assents to transfer
• License subsequent to the merger
• Interest of the copyright holder.

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 Effect of Transfer
• Transferee Co. pursuant to the order
affirming the scheme
• Application shall be accompanied by the
order of the court approving the scheme.
Trademark (Regt. TM) - Apply to the
Trademark Registry for registering the
title.
Patent - Controller of Patents
Copyright - Registrar of Copyright
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 VALUATION OF IPR
Different/difficult – Than land – building -
machinery?
Because Intangible
Crucial to the success of the M & A
Valuation of
Technology
R & D
Know How
IPR in General
• IP is New? – Becomes more difficult to know the
commercial price with ascertained degree of certainty
and actual value realized. 27
 Valuation of IP- Reality
Valuation - Critical factor in determining the
financial condition of the players in M&A.

Valuation - Often a difficult task – IP’s true

value may not be readily apparent.

Further Complicated - IP Value (Initially arrived at/

presumed) - Generally not stagnant - Rather changes over
time

Recognizing the above difficulties in valuing IP,

economists have traditionally utilized at least one of the
following methodologies to derive a value for an IP asset
 WIPO Regional Seminar on
IP Valuation Methods Support Services for Inventors
(Valuation & Commercialisation
of inventions & Research Results),
Manila 1998

COST MARKET INCOME

METHOD METHOD METHOD
 Cost-Income-Market Approach
• Cost – Cost of reproduction, replacement,
depreciation cost, original & Book cost
• Income- based on expected income during
remaining economic life (Discounted cash
flow analysis)
• Market – based on market of comparable
intangible assets (Comparable Uncontrolled
Transaction (CUT) Method)
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• General Radio & Appliances Co Ltd v M.A. Khader
(1986) 60 Com. Cases 1013
• Transferee Co. – not obtained the written consent of the
Landlord – Eviction petition – valid.
• Court set aside the transfer of the tenancy rights held under the
scheme of amalgamation on this ground.
• In Re Kirloskar Ltd, (Kar. HC) – Trade Mark issues may
have to be decided by the Civil Court – CC may not have
jurisdiction to decide the title/ownership of Trademark.

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THANK YOU

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