What You Need to Know When Buying or Selling a Business with Key Intellectual Property

By: Kaiser Wahab

Merger and acquisition transactions often succeed or fail on the basis of adeptly performed due diligence. The results of the due diligence process will often determine core deal terms, transaction structure, and whether the deal itself even moves forward. Transactions where intellectual property (“IP”) is the key or sole asset to be acquired require their own particular considerations and inquiries that may not be obvious to a general practitioner.

In situations where the proper care has not been taken, valuing and structuring the transaction can be adversely affected, the post transaction operations of the target business can be compromised, and the rights of both purchaser and seller can be significantly undermined. It is therefore very important for counsel to be aware of how each type of intellectual property is acquired, protected, and maintained when structuring a merger or acquisition transaction.

Types of Intellectual Property

There are four major types of intellectual property that a business may own: copyrights, trademarks, patents, and trade secrets.

Copyright

Copyright protects original, creative works that are “fixed in a tangible medium of expression.” This would include, for example, literature, photographs, drawings, music, video, and software. Copyright allows the owner to prevent others from using the work without the owner’s permission, or creating a new work that is “substantially similar.”

Copyright protection begins at the time of creation and lasts the life of the author (or last remaining author) plus seventy years. If the work was created for the business as a “work made for hire,” which means that the “creator” of the work is the company and not the person who actually created it, then protection lasts for 95 years from publication of the work or 120 years from creation, whichever is shorter. Registration with the Copyright Office is not required in order to obtain a copyright, but it is essential to the proper protection of the copyright.

Trademark

Trademark protects names, logos, slogans, and other expressions that are used “in commerce” and identify products or services of a particular source from those of others. This would include brand names, logos, slogans, colors, and sounds.

Trademark protection continues for as long as the trademark is used in connection with the sale of goods or services. Similar to copyrights, trademarks do not need to be registered with the United States Trademark and Patent Office (“USPTO”) in order to be protected, but registration is often recommended as it grants extra rights to the trademark owner. These rights include the right to use the ® symbol next to the trademark and the ability to file an infringement lawsuit in federal court. The USPTO will deny registration to any other trademark it considers to be confusingly similar.

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