Situation: The Company is interested in acquiring either the intellectual property (IP) of another company or the company itself. The target is a minor division of a larger parent company. The CEO contacted the parent and confirmed their interest in a deal. What are the key factors to negotiating an IP acquisition?
Advice from the CEOs:
- You need to assure your rights to both current IP and future enhancements. This applies whether you or the parent is the final holder of the IP.
- Look for clear language as to what constitutes base IP, derivative IP and extensions of the IP. You want to preserve your interest in future derivatives and extensions that you create.
- There is a material difference between your position and the parent’s.
- If the parent retains the IP, they also gain certain rights to IP extensions based on the current IP. If you own the IP, their potential rights to future IP are lost.
- If the parent feels that the IP has strategic value – whether or not they are currently taking advantage of it – this will be one of the more difficult aspects to the negotiation.
- What options are there besides acquiring the company?
- The parent can grant a fully paid license to the technology, with access to the people and assets, waiving residual rights to future IP extensions, and no restrictions on transfer.
- Another option could be a one-time royalty fee that is a perpetual license.
- Within your due diligence, try to get a sense of the parent’s motivations and concerns for entertaining your interest in the acquisition. This will help you to frame a deal that works for both parties.
- If the parent has been an active licensor or seller of IP, look for lawyers who know the company. Try to secure one of these as counsel for your negotiation.
- From a liability standpoint, it is better to buy or license the IP and technology than the company. Liability travels with the company. Part of your negotiation will be who inherits any carry-over liability.
Key Words: Intellectual Property, IP, Acquisition, Rights, Enhancement, Derivative, Negotiation, License, Royalty, Legal Counsel, Liability