Patent rights in corporate transactions: Mergers and acquisitions
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.
Mergers and acquisitions ("M&A") take many forms, and there can be a clear difference between a true merger – two companies coming together to form a single, new entity – and an acquisition – one company is the dominant entity taking ownership of the other. However, the two terms are more often used together as a shorthand for the sale and purchase activity between corporate entities of parts or the whole of their businesses. That is the general sense in which that term is used here.
There are two fundamentally different approaches to a sale and purchase: by acquiring or selling company shares; or, by acquiring or selling the assets of a company. In a share purchase, the target company is purchased as a whole, including all its assets, such as patents and other intellectual property owned by it, as well as all the company's liabilities. All licences in and out of the company being purchased will remain with it, although these must be checked during the due diligence process for provisions barring change of control. The ownership of the intellectual property and parties are carried across automatically with the shares in the target company and therefore separate assignment is not required.
In an asset sale, the purchasing company buys those assets that it would like from the target company, but it does not purchase the company itself. In this way many assets (and liabilities) remain with the target company. The consequence of this is greater complexity, because all the intellectual property assets being transferred must be assigned separately from the other assets of the company. Whilst all intellectual property assets can be covered in a single assignment, it is normal to list the registered rights and the most important unregistered rights in a schedule. In a life sciences company, the identification of the patents being transferred is of obvious importance. For registered rights such as patents, the new ownership by the acquiring company must be recorded in the relevant registers.
In an asset sale/purchase, the transfer of licences can be problematic. If licensed-in intellectual property is to be acquired the consent of the licensor is likely to be needed, creating difficult commercial questions about how and when to approach the licensor to seek permission. In life sciences companies, such licences may be critical to the operation of the business, but there is a risk that the licensor may not wish to licence the purchasing business and would rather terminate the licence. Such matters must be checked as early as possible. Exclusive patent licences must also be registered to the purchasing company.
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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