Patents play a crucial role in determining a company’s value during acquisitions, making it essential to carefully evaluate and integrate them to prevent unintentional loss of rights and value. Companies can reduce risks in M&A negotiations and deal finalizations by taking proactive steps.
This blog includes a detailed analysis of the patent portfolio, developing a strategic plan for keeping patents that align with business requirements, ensuring accurate recording of assignments, and starting the payment of maintenance fees in relevant jurisdictions.
The Role of Patents in Mergers and Acquisitions:
As intangible assets, patents significantly add to a company’s value. They offer a period of limited exclusivity, allowing companies to prevent competitors from using, selling, or offering patented technologies.
This exclusivity boosts competitiveness and protects revenue streams from patented technologies, making a strong patent portfolio a desirable asset for potential acquirers.
Having patents that limit others from providing similar products or services can be especially attractive to acquirers. The perceived automatic enforcement layer of protection can serve as a barrier to potential competition, strengthening the target company’s market position.
Despite the possibility of significant damages in patent litigation, some industries see a direct link between patent ownership and increased business value.
Potential Challenges In Securing Patent:
Without careful post-acquisition processes, companies may end up paying for patents they can’t effectively use.
Failures in transferring ownership through assignments, recording these assignments in the right jurisdictions, or neglecting maintenance fee payments can make acquired patents ineffective. This is particularly important when acquiring specific business lines rather than an entire company.
An acquiring company must understand that intellectual property includes the targeted product or service and must ensure the smooth transfer and maintenance of related intellectual property.
Failure to do this can deprive the company of competitive advantages expected through the acquisition.
Strategies for Success In Patent Search:
The issues mentioned are just a glimpse into the complex world of intellectual property in Mergers & Acquisitions transactions.
The first step involves a thorough understanding of the patent portfolio, considering jurisdictional holdings, ongoing maintenance costs, clarity in the chain of title for each patent, coverage of business lines, and the importance of individual patents to the new business.
This understanding allows company leaders to make informed decisions on which patents to keep, enforce, or let expire, thus reducing both immediate and long-term costs. Patent attorneys play a pivotal role in implementing these decisions.
They assist in the assignment of patents, ensure proper recording after transaction closure, and provide a clear schedule for maintenance fees, including budgeting considerations and potential involvement of foreign counsel.
Efficiencies can be realized by consolidating IP management under a single Intellectual Property law firm. This not only simplifies project management but also cuts costs.
After acquisition, strategic evaluation of patent strengths and weaknesses, along with freedom-to-operate or clearance search, guide decisions on acquiring specific patents or technologies.
Freedom to Operate (FTO) ensures a company assesses the commercial viability of launching a product in a specific country without unintentionally infringing on patented technologies.
Conducting an FTO or clearance search involves identifying existing or pending patents that could pose a risk to the product or process intended for the market. This may involve entering into exclusive or non-exclusive license agreements.
Handling the main cost associated with patents, namely maintenance fees, after an acquisition can be managed through different strategies. These include working with third-party firms or collaborating with foreign legal representatives in applicable jurisdictions.
Intellectual property lawyers, who have established connections with vendors and foreign legal representatives, can provide valuable insights into the advantages and disadvantages of such collaborations.
Sticking to best practices for patents in Mergers & Acquisition activities helps companies to enhance deal value, reduce expenses, and protect their competitive advantage.
The early involvement of intellectual property lawyers, proactive evaluation of patent portfolios, and careful attention to post-deal transfers and maintenance procedures are crucial for success.