Existing IP – Buyer beware
Thinking of buying a business’ intellectual property? Before you sign on the dotted line, there are a few things to consider.
What is intellectual property?
Intellectual property, also known as IP, refers to creations of the mind, such as inventions, literary and artistic works, designs, and symbols, names and images used in commerce.
IP is protected in law. Registered forms of IP include patents and trade mark which allow people to earn recognition or financial benefit from their invention or creation.
A patent is a right that is granted for any device, substance, method or process that is new, inventive and useful. It is a legally enforceable right to commercially exploit the invention for the life of the patent.
A trade mark identifies a business’ unique product or service from its competitors.
A trade mark can be a logo but can also be a letter, number, word, phrase, sound, smell, shape, logo, picture, movement, aspect of packaging, or a combination of these. A registered trade mark provides a business with the exclusive rights to use, license and sell the mark. It may also be a valuable marketing tool because the value of the trade mark may increase with the success of your business.
Considerations when buying a patent or trade mark
Before entering into an agreement for the purchase of a patent or trade mark, it’s important to consider a few matters:
- Do your due diligence
During your pre-contract negotiations (unless the contract is conditional on the satisfaction of due diligence) it’s important to conduct due diligence in respect of the IP proposed to be purchased.
IP due diligence is the assessment of the IP proposed to be acquired. A number of considerations need to be taken into account during the due diligence period, including:
- who owns, uses, licenses the IP?
- what exactly is the IP being acquired?
- how does the owner protect the IP?
- are there any third-party IP right that may impact on your business and/or your business’ ability to operate?
2. What is its worth?
Effective management of a patent or trade mark is important to maintain its value.
For instance, a patent must be registered to receive legal protection as a patent. A registered patent will:
- restrict others from manufacturing, using and/or selling your invention or creation in Australia without consent; and
- grant a license to someone else to manufacture your invention on agreed terms; or
- take legal action against infringers and copycats.
Confirming the status of the patent is vital. The lapsing or withdrawal of a patent may undo the patent’s legal protection under patent law. Additionally, acquiring a patent that has not yet been granted is risky because:
- the application for a patent may not be successful thus reducing the value of the purchased IP;
- disclosure of the details of the patent to anyone, anywhere, anyhow without the use of a confidentiality agreement will invalidate the patent before it is granted.
3. Where will the IP be used?
A buyer must consider where its IP will be used. Australia only or overseas? Registration of a patent or trade mark in Australia only provides protection in Australia. If the product or service will be used overseas, additional considerations should be taken into account before following through with the transaction, including:
- costs of protecting the IP overseas (each country have their own patent registration processes);
- does the country recognise international patent laws.
4. Initial and ongoing costs
If the IP the business proposes to acquire is unregistered, registration fees will need to be considered. IP fees vary depending on the type of IP. If the IP is in the application stage, fees will apply. There are different renewals fees for trade marks and patents.
5. Assignment of IP
Whether the IP is at the application stage for registration or already registered, the IP will need to be assigned or transferred to the new owner. A request to assign ownership must be lodged with IP Australia, together with supporting documentation. Existing IP – Buyer beware.
At Cohen Legal we can assist with your IP due diligence and provide advice on all aspects of the commercial transaction so that you are fully informed of your options and risks. Our business is protecting yours.