Patent rights in corporate transactions: Initial public offerings

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.

An initial public offering ("IPO") is the listing of a company's shares on a public stock exchange. It typically happens at the stage of the life of a company when those investors who have financed the company want to realise some or all of their investment, and it provides an exit route for venture capitalists. The issuing and sale of company shares on the market also allows the company to bring in new capital and pay debts. Once listed, the company has the flexibility to raise further capital by rights issues and offers the chance for employees to own a stake in the business.

The IPO process requires the preparation of a prospectus describing the company for potential shareholders. There are a number of obligations on those preparing the prospectus to ensure the accuracy of the information included. This requires extensive and thorough due diligence to ensure that the details given are correct. The due diligence process must encompass intellectual property and, as regards life sciences companies, the value of drugs or potential drugs is very much dependent on the patent applications and granted patents protecting them. Whilst the due diligence principles are the same as those outlined in The Importance of IP Due Diligence the onus on due diligence in an IPO gives rise to particular processes and obligations that are outside the scope of this article.

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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