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Transferring Ownership Of IP Assets In M&A Deals
Law360, New York (December 03, 2013, 1:31 PM ET) -- Most business mergers or acquisitions involve a
written agreement between buyer and seller (also referred to as "target") that defines in detail the
terms of the transaction. The acquisition of intellectual property can take many structural forms.
Acquisitions may be categorized generally as involving (1) the purchase of an entire business, or all or
substantially all of the IP assets, or (2) the purchase of only a portion of a target business, and therefore,
the purchase of certain IP assets only.
In the Entirety
An entire business can be acquired by a variety of contractual means, including the common "stock
purchase agreement," where the stockholders sell the stock of the corporation conducting the business
to be purchased, or "asset purchase agreement," where a company sells the assets used in operating
the business to be acquired. A general summary of commonly used structures for transfers of an entire
business is outlined below.
Stock Purchase. In a stock purchase, all shares of the target are sold to the buyer, with both companies
remaining intact and the target becoming a subsidiary of the buyer. The buyer assumes all of the
target’s liabilities by operation of law. This is called "successor liability."
Asset Purchase. In an asset purchase, the buyer purchases the target’s assets and assumes only those
obligations and liabilities of the target that are expressly stated in the purchase agreement. The parties
must negotiate which liabilities the buyer will assume and which the target will retain. There are
situations where all of the target’s obligations will nevertheless be imposed under what is known as the
doctrine of successor liability, namely:
1.
2.
3.
4.
Express or implied assumption of liability by the buyer
De facto merger or consolidation
Continuation of the business enterprise
Fraud in the transaction
Merger/Statutory Merger. In a merger of the buyer and the target, only one company survives and the
other company — the "merged" company — ceases to exist. The surviving company (which may be
either the target or the buyer) assumes all assets and liabilities of the merged company.
Subsidiary Merger. This is a merger of the buyer and the target where one party becomes a subsidiary
or part of a subsidiary of the other. Any changes to the division of assets and liabilities should be spelled
out in the relevant merger agreement.
Consolidation. Two or more companies join to form an entirely new company. The combining
companies are dissolved and only the new entity continues to operate.
Partial Transfers
An acquisition may be limited to certain business assets only — a partial business transfer. In such deals,
the parties must define the assets to be sold (and the liabilities to be assumed) as well as the assets to
be retained by the seller.
The parties should negotiate a description of the relevant IP assets with an eye toward avoiding any
confusion or dispute in the future concerning the IP assets and liabilities to be transferred.
As with transfers of the entirety, such partial transfers may be implemented by a variety of deal
structures. A general summary of commonly used structures for partial transfers is outlined below.
Partial Asset Purchase. Here, the buyer specifies which assets it will acquire. The purchase agreement
will also specify those liabilities the buyer will assume.
Restructures (Such as Sell-Offs, Spinoffs and Divestitures). Here, the target sells off part of its company,
such as a particular division. This often occurs when a business desires to sell off one or more of its
noncore subsidiaries to focus on its core business. As with asset purchases, the parties will specify by
contract which liabilities the buyer will assume.
Joint Ventures and Investments/Financing. These sorts of deals may not involve the technical transfer
of IP assets, but will typically involve sharing of management and control over the venture and its IP
assets. Thus, many of the same concerns with respect to sharing IP ownership and use rights will come
into play. The careful IP practitioner should watch out for such IP asset-sharing issues when dealing with
joint ventures, investments or financing deals.
Shared IP Ownership
Although it is theoretically possible to share IP ownership between the buyer and the target company
when constructing these deals, there are circumstances that make joint ownership impractical.
Trademark. Trademark ownership rights may be divided by territorial jurisdiction or goods/services.
And, since it may avoid some of the inconveniences of a trademark license (such as the requirement of
quality control), sharing trademark ownership may be attractive.
As trademarks serve as designations of origin from a single source, however, granting ownership rights
to two unrelated entities such as seller and buyer may be contrary to fundamental trademark policy or,
at the very least, may cause consumer confusion or result in a weakened trademark.
Relying in part on these policies, the Sixth Circuit recently noted in a case involving interpretation of
acquisition contracts that joint trademark ownership is disfavored and, while it is possible to create
beneficial joint ownership or licensing arrangements, joint ownership should not be presumed absent
clear agreement language. Yellowbook Inc. v. Brandeberry, 708 F.3d 837 (6th Cir. Ohio 2013).
Patent. Patent ownership rights may be divided by "field of use" of the patent (such as making, selling or
using the invention claimed in the patent), though it can be difficult to ensure no overlap in each party’s
field of use. Such rights may also be divided geographically by country or other delineated areas; some
countries permit limited geographical licenses in only parts of the country.
Copyright. While theoretically possible to share ownership of a work of authorship by dividing the
copyright owner’s exclusive rights (i.e., distribution, copying, preparing derivative works, etc.), this can
be difficult where one right may encroach on the market of another. This is particularly true in today’s
world of open, global access. Consider the division of print and digital distribution rights to the same
work, for example.
—By Ethan Horwitz, King & Spalding LLP, and Kandis Koustenis, The Francis Co.
Ethan Horwitz is a partner in King & Spalding's New York office. Kandis Koustenis practices with Cloudigy
Law, a cloud-based intellectual property and technology law firm, and is a strategic consultant with The
Francis Co., an intellectual property advisory company.
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