Intellectual property (IP) refers to intangible assets such as patents, trademarks, copyrights, and trade secrets. These assets increasingly represent significant, material value of businesses, and as such, they need to be properly protected and managed in buy/sell agreements.
In a buy/sell agreement, the seller is often required to transfer ownership of any IP that is part of the business being sold. This may include patents, trademarks, and copyrights that are used in the business, as well as any trade secrets that are part of the business’s operations. That transfer of ownership poses certain risks to both buyer and seller.
The buyer will typically want to ensure that they are acquiring all the IP associated with the business, and that there are no outstanding issues or disputes regarding the ownership or use of the IP. The buyer may also want to ensure that the IP is properly registered and protected, and that there are no third-party claims to the IP.
The seller, on the other hand, will want to ensure that they are being properly compensated for the transfer of ownership of the IP, and that they are not relinquishing any rights or claims to the IP that they may have.
To address these issues, the buy/sell agreement should include provisions that specify the IP being transferred, the terms of the transfer, and any necessary warranties or indemnities. It should also address any ongoing obligations or restrictions on the use of the IP after the sale.
There are several steps involved in transferring ownership of IP assets:
- Identify the IP: It is important to accurately identify the IP assets, including patents, trademarks, copyrights, and trade secrets that are being transferred. With patents for example, this may include the patent number, the title of the invention, and the date of issuance. Because trademarks, copyrights, and trade secrets are not always registered, careful consideration should be given to identifying and memorializing those assets in the buy/sell agreement.
- Obtain the necessary documents: To transfer ownership of registered IP assets, you will need to obtain a copy of the registration documents and any assignment documents that may have been previously filed. You may also need to obtain a copy of any licensing agreements or other documents that may affect the ownership of the IP assets. For unregistered IP assets, such as trade secrets, you will need to provide adequate technical documentation expressing the trade secret.
- Determine the value of the IP assets: Whether the transfer of ownership is being done in exchange for monetary or non-monetary compensation, it is important to determine the value of the patent. This may be done through negotiation or through the use of a valuation service. In any event, the valuation of the IP assets is often a challenging aspect in transferring ownership, requiring professional expertise to properly assess value in the context of the sale.
- Prepare the transfer documents: To transfer ownership of IP assets, you will need to prepare a written assignment document. This document should include the names and addresses of the parties involved, the identification of the IP assets, and a description of the rights being transferred. The document should be signed by the party transferring ownership (the “assignor”) and should be witnessed by a third party. Separate assignment documents may be required for each type of IP asset.
- Record the transfer: For registered IP assets, the signed assignment documents should be filed with the relevant national register to officially record the transfer of ownership. In the United States, this is done through the United States Patent and Trademark Office (USPTO) or the United State Copyright Office. In other countries, the process may vary.
It is important to work with an attorney who is knowledgeable about intellectual property law when transferring ownership of IP assets to ensure that the process is done correctly and that all necessary documents are prepared and filed.
J.S. Held expert Scott E. Evans, CPA, ABV, CFF, a Managing Director in the Forensic Accounting Insurance Services practice, explores other common issues in buy-sell agreements. Read his article here.
Christopher Bruce is a Director in Advisory Services, working from the Chicago Headquarters of Ocean Tomo, a part of J.S. Held. Advisory Services is comprised of Transaction Advisory, Investments and non-securities Investment Banking. Mr. Bruce holds the FINRA Series 7 and 63 license. Mr. Bruce plays an integral role in supporting the firms work on behalf of client in the areas of IP-driven transactions, mergers and acquisitions, IP monetization strategy as well as IP-based special situations investments.