What advice do you have for clients exploring the possibility of purchasing an existing IP portfolio?
Evolving business dynamics means that purchasing portfolios can sometimes be a good option for companies. Most portfolios are spread over various jurisdictions, making the task of an IP strategic consultancy an extremely demanding one. In matters of IP transactions, including purchasing, performing an informative and conclusive due diligence is key. This should not only reflect the nature and legal status of the intellectual assets, but it must also be conclusive when it comes to fact finding, which could influence transactional negotiations such as purchase cost and royalty calculations. Obviously, not all assets in a portfolio will align with a purchaser’s business strategies, thus due diligence should categorise these in order of relevancy and in terms of offensive and defensive business strategies, while ensuring that there are no similar technologies that may either be in development, on the market or in development. Often, post-purchase the original objective shifts from defensive to offensive needs. Thus, it is critical to ascertain the non-expired terms and enforceability of intellectual assets.
It is just as important to weigh assets with regard to freedom to operate (ie, to ensure that there are no other restrictions on use and that no third parties’ rights are involved). Alongside, an analysis of the intellectual, technological and economic landscape of a competitors’ portfolio must be carried out to ascertain its strategic benefits and worth.
Can you share more on what clients should be wary of?
A poorly drafted and executed purchase agreement is a red flag, as is one silent as to post-transactional liabilities and risks. The agreement should act as a controlling and defining factor for possible future repercussions/breaches and benefits, besides ensuring non-divergence in matters of infringement – at least for a certain period. Obviously, it should be stringent with regard to compliance, enforcement, infringement and exclusivity. Other parameters are subject to the purchase being mutually exclusive or non-exclusive. Drafting should begin during initial conversations of a possible transaction, thereby ensuring confidentiality and compliance during and post-closure. Moreover, one single agreement may not cover every aspect of a portfolio purchase. Therefore, terms and conditions should ensure coverage and validity of purchase over multiple jurisdictions.
Particular emphasis should be placed on the wording and scope of agreement terms covering instances of cross-border enforceability, country-specific contract governing laws and procedures and site of alternative dispute resolution centres and such other compensatory channels. In particular, it should be stipulated that all intellectual assets are renewed for a term of at least two years, prior to execution of an agreement to purchase. Agreements should be reviewed by the portfolio owner to confirm the legitimate title, right and enjoyment of claimed intellectual assets in absolute terms. Existing licence and restriction agreements should also be reviewed.
What can go wrong, when trying to purchase an IP portfolio?
Most intellectual assets are overvalued. In addition, a purchase covering various jurisdictions with non-renewed assets can result in major enforceability issues. Moreover, the government fees to be paid in various jurisdictions, attorney and disbursement expenses can add further costs.
Legitimate ownership and the enforceability of intellectual assets must be ascertained before the purchase is made. It must also be established that the purchase does not violate existing licences or co-existence agreements to which the purchaser is already a party. Obviously, the purchaser must ensure that it will receive ownership and rights to all agreements relating to the asset portfolio.
In what instances is it more viable to license an IP portfolio?
Licensing is always a great option when considering immediate commercial exploitation in multiple jurisdictions without worrying about enforceability and maintenance. With limited R&D funds, licensing is a good way to scale up operations and focus on product development. If negotiated well, restricted licence rights can cost less than creating and maintaining intellectual assets. Also, depending on budget and business, a licence can be taken on exclusive and nonexclusive terms. Obviously, a licence can be used for both offensive and defensive purposes.
Most start-ups tend to seek a licence as mean to secure immediate IP protection besides a right to protected technology. Depending on the nature of the intellectual property, licences can assist, not just in technology advancements, but in brand positioning. Additionally, a licence can be used to enter new markets, entry to which may otherwise result in infringement suits.
Amit Aswal is the founding member of AnovIP with over 14 years’ experience in the IP space. He is a graduate of Delhi University, India and holds degrees in information technology and law. Mr Aswal is an expert on IP portfolio scouting and the evaluation, formulation and implementation of defensive and offensive IP strategies, IP negotiations and transactions, IP licensing opportunities identification, sales and branding of patent portfolios for creating patent pools and IP royalty determination. Amit Aswal 6