Patent rights in corporate transactions: Divestment

January 2017

This is one of four articles addressing the general patent issues arising for each of four key activities in which a company may be involved during its lifetime: merger and acquisition; joint venture; flotation; and/or divestment. It is relevant to UK private companies under English law, including the private company subsidiaries of quoted public companies. It is not concerned with quoted companies, where quite different considerations apply.

The fast evolving nature of the life sciences sector means that even relatively small companies may wish to change the direction of their business from one area of technology to another. Additionally, for large enterprises, there may be the need to focus on areas of particular expertise and profitability and move away from others. In either case, the company may wish to divest itself of patents covering certain technology areas so that it can realise value for the technology without having to devote resources to its further exploitation or development. Typically, this can be done by outright assignment of patents, know-how and other assets, or by licence. If it is by licence, then the divesting company will most likely take a royalty and this requires some continuing involvement in ensuring that the licensed technology is being exploited with the appropriate endeavour. If the area of technology is a particularly complex one, such as an entire business area, requiring a number of rights to be assigned or licensed, together with other assets such as staff, the appropriate way to divest may be the creation of a new corporate entity, into which the assets are pooled, followed by a sale of the company to a third party.

These transactions are typically highly complex and expert assistance is required in each case. The following is merely intended to outline the principles involved.

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