Securing IP Rights in M&A Transactions

marcus evans
October 1, 2015

Interview with: Marc Bergmann, Senior Vice President & General Counsel, M&A, Gemalto

“Securing the intellectual property (IP) rights of technologies has become central to the success of acquisitions, especially in the high-tech world, as they carry so much value and risk for the future of the company acquired,” says Marc Bergmann, Senior Vice President & General Counsel, M&A, Gemalto. According to Bergmann, counsel do not always realise the complexities involved in IP protection. “Companies must hire the right experts to ensure they do not buy an empty shell, that the target’s IP is valuable and well protected. For successful high-tech companies of today, it is all about the IP they own,” he believes.

When structuring merger and acquisition (M&A) transactions, what are the key IP issues to consider?

It depends on what technologies the company owns, but in general, patents are still playing a key role in M&As today but you need to focus on copyright issues as well. When due diligence is done, there must be a special focus on IP. The risks increase with visibility. Small companies often infringe on the rights of larger ones. The rightful owners will not sue because they are unaware of the infringement or the company is very small, but that would change when a large group acquires it and starts spreading the technology through its commercial network. If counsel are not careful, they can buy themselves into a minefield of potential lawsuits.

How can IP be a valuable tool on the negotiating table?

If the audit finds that IP is not protected properly, the buyer should be able to bring the seller to drop the price, sometimes dramatically.

The other aspect is copyrights. To be able to defend creations or developments (software) that are not registered, one must be able to evidence the creation date, the different stages of the development of a software, etc. For that purpose, engineers must for instance keep log books of what they do, when ideas arise and so on. If you have good records you can resist price reduction at least on that topic. The same principle can be applied to good patents, filed in the right countries, with all fees duly paid. With a strong portfolio you enter the negotiations in a strong position.

Which aspects of IP tend to be underestimated in the M&A process?

Counsel do not always realise that if patents or other rights are well protected in one country, it does not mean they are protected in another or with the same scope. They can buy a company and find that a key patent is not registered in all the countries where they expected to do business. Also the strength of registrations vary from country to country. The registration of a trademark, for instance, is granted systemically after basic review, but it can still be cancelled in certain countries if not used or if someone else has prior use that was not raised when the trademark was registered. There are plenty of traps for those who do not practice in the area.

What IP issues arise when large groups spin off business units?

Good question! Carve outs present very different types of risks to be addressed specifically. Here the IP issues that you will face are usually a consequence of the centralisation of IP rights. The ownership of trademarks and patents are usually centralised in a holding company, either in the country of the headquarters of the seller or a tax haven. First, counsel must identify what IP of the carved out business is necessary for the business to continue to operate once part of the buyer’s organisation. In the ideal world, you want to get all the IP rights related to the business you acquire. If that is not possible, prepare to enter into complex licensing negotiations and patent and trademark transfers, which can have a financial impact on the business if not negotiated properly. Companies must fight for patents that the business might need in the future.

Contact: Sarin Kouyoumdjian-Gurunlian
Press Manager, marcus evans
Email: press@marcusevanscy.com

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