What Happens to IP During Mergers and Acquisitions?

Mergers and acquisitions (M&A) can be monumental for everyone across all companies. It can reshape industries and create growth opportunities whether they’re happening between small businesses, large corporations, or both. While the focus during these transactions often lies on financial agreements, workforce integration, and brand alignment, one critical component that must be noticed is intellectual property (IP).

IP — patents, trademarks, copyrights, and trade secrets — is often one of the most valuable assets a company owns. For business owners navigating the complex world of M&A, understanding how IP is handled, protected, and transferred can make the difference between a seamless merger and a costly oversight.

Emerson Thomson Bennett will dive into the role of intellectual property in mergers and acquisitions, the transfer process, and the challenges companies face along the way.

What Is Intellectual Property in This Context?

Intellectual property refers to intangible assets that give businesses a competitive edge. This includes:

• Patents (inventions or processes)
• Trademarks (logos, brand names)
• Copyrights (creative works)
• Trade secrets (proprietary information like algorithms or recipes).

For many businesses, these assets contribute significantly to their value. For instance, a tech company’s patented software or a fashion brand’s iconic logo can account for a large portion of their market capitalization. Thus, during M&A, IP is central to accurately appraising the worth of a company.

When assessing a potential acquisition, buyers scrutinize IP to project future earnings and competitive positioning. For example, if Company A acquires Company B, and Company B owns valuable patents, those patents could become a driver of growth and profitability.

Conversely, unclear or unprotected IP can act as a liability. This underscores the importance of identifying, valuing, and safeguarding the intellectual property you have now during any merger or acquisition.

Transfer of Ownership: How IP Changes Hands

During M&A, intellectual property typically transfers to the acquiring company as part of the agreement, though the specifics depend on the transaction structure. The two most common structures—asset purchase and stock purchase—dictate how IP is managed.

Asset Purchase

If the acquisition is structured as an asset purchase, only specific assets (including identified IP) are transferred. This gives the buyer more control over what they acquire and excludes unwanted liabilities. However, the process may require individually assigning each IP asset, leading to a more complex transaction.

Stock Purchase

In a stock purchase, the buyer acquires the entire company, including all IP assets. Here, the IP remains with the company, but the ownership indirectly changes through the transfer of stock. This approach typically simplifies the process but may include liabilities tied to the acquired IP.

Legal Documentation Is Key

Ensuring the proper legal documentation is critical for a smooth IP transfer. Agreements must assign ownership of patents, trademarks, copyrights, trade secrets, and associated rights to avoid disputes. Additionally, existing licensing agreements must be reviewed, and any required regulatory approvals should be addressed.

Due Diligence in IP: Why It’s Crucial

Conducting thorough due diligence on intellectual property can protect buyers from potential risks and surprises. This process involves a comprehensive review of all IP assets to ascertain their value and ensure they align with the strategic goals of the merger.

Evaluating Existing IP

During due diligence, buyers assess whether the target company’s IP is properly registered, protected, and documented. Key questions include:

• Are there any pending patent applications?
• Are trademarks and copyrights up to date?
• Is there a clear chain of ownership for all IP assets?

Uncovering Legal Risks

Due diligence also identifies legal risks, such as disputes over ownership, regulatory non-compliance, or third-party claims. For example, if the target company’s patents or copyrights are undergoing litigation, this could affect their future usability and value.

Experience Matters

Buyers often rely on legal professionals and IP attorneys to guide due diligence. Firms like Emerson Thomson Bennett evaluate, protect, and negotiate IP during M&A, ensuring that business owners avoid costly mistakes.

Common Challenges and How to Overcome Them

1. Unclear Ownership

When IP ownership isn’t documented, disputes can arise after the acquisition. For instance, employees or outside collaborators could claim rights to certain IPs. To prevent this, businesses should maintain well-structured agreements—whether through employment contracts or licenses.

2. Third-Party Licensing Issues

Existing licensing agreements with third parties can complicate transactions. Buyers may need to renegotiate or gain consent to ensure continued use of the licensed IP. For example, if a target company licenses software to multiple users, transferring that agreement may require approvals.

3. Regulatory Compliance

Certain types of IP, such as pharmaceuticals or proprietary technology, may need regulatory approvals before being transferred. Overlooking these requirements can delay or jeopardize the merger.

4. Trade Secrets

Protecting trade secrets can be tricky during due diligence. Companies must ensure confidentiality agreements are in place to prevent the exposure of proprietary information during negotiations.

Emerson Thomson Bennett Can Help Business Owners Transfer IP During Mergers and Acquisitions

Intellectual property plays a foundational role in mergers and acquisitions. For companies undergoing these transactions, properly identifying and managing IP can influence valuation, mitigate risks, and unlock long-term growth. By understanding the nuances of IP transfer, conducting due diligence, and addressing common challenges, businesses can set the foundation for a successful collaboration.

At Emerson Thomson Bennett, we provide tailored guidance through every stage of the merger and acquisition process, from evaluating IP assets to drafting airtight legal agreements. Our experienced attorneys, with a focus on IP, stand ready to ensure your intellectual property is safeguarded. Whether it’s filing lawsuits or mitigating disputes, we’re here to help.

Interested in protecting your IP during a merger? Contact our team today. One consultation could save your company from costly mistakes.