Intellectual Property Considerations in Mergers and Acquisitions
Paul Sharpe, June 2013
Intellectual Property may be part of a company that is acquired or with which another company merges. The Intellectual Property can take the form of Trademarks, Patents, Designs, Trade Secrets, Copyrights, Plant Breeder’s Rights, Integrated Circuits, etc.
Unfortunately, in merger and acquisition transactions, the Intellectual Property due diligence is often overlooked and the intellectual property is typically “thrown in with the deal”. This can be an unfortunate situation, since the real value of the intellectual property may never be realized. If analyzed, the intellectual property may be a source of income in terms of licensing fees, fees generated from sale of the assets, fees associated with assignments, trade of intellectual property for other intellectual property and monetary consideration. If the due diligence concerning the intellectual property is done prior to closure of the transaction, there is a distinctive vantage that can be realized; assuming the intellectual property is in good standing and there are no encumbrances (see below), the result could be a value-add proposition for the transaction which can also provide the concomitant advantage of expediting the transaction, increasing the transaction price among other attractive benefits.
As a further advantage, there may be an opportunity for a joint venture with another company to better position the purchasing company in a specific industry.
RISKS COMPONENTS TO BE CONSIDERED:
On other side of the coin, the intellectual property may be a detriment. It may be that some of the intellectual property infringes the rights of others or that licensing fees are owed to licensees or that licensees are owed fees that in turn are owed to the target company. Further still, there may be real or imminent litigation involving the intellectual property.
THE IMPORTANCE OF DUE DILIGENCES:
In any event, a due diligence should be conducted concerning the intellectual property. Although the prospect of conducting a due diligence may seem daunting, the procedure is extremely useful and can yield very profitable results for the purchaser. In general overview, there are a few simple procedures which, if observed, can go a long way to benefit the purchaser of the target company.
One should initially determine if the company being acquired properly owns or has the adequate license(s) in place to use to the technology. Second, a review of all agreements into which the target company has entered is required. This will ascertain whether the company’s licenses are of sufficient breath to cover future use and/or modifications of the technology and ownership indications for improvements. The issue of infringement should also be addressed. The company being acquired should fully disclose potential infringement issues to the purchasing entity whether they have been resolved or are pending.
The existence of any royalty obligations of the target company should also be analyzed in the form of licensing fees, lump sum payments, emissions, etc. as well as duration of payment and any conditions related thereto.
Finally, a further important consideration to bear in mind is employee requirements regarding intellectual property issues. It should be confirmed that all contractors/employees have signed agreements vesting the intellectual property to the target company. It is an important aspect and avoids competition issues as well as having to try to track down employees that may have been terminated or moved on after the transaction has been completed.
CONCLUSION:
It should be borne in mind that this is a general overview of the considerations involved in intellectual property assets in the merger and acquisition environment. There are tax consequences to be also considered as well as a series of other nuances that require professional assistance.
Should you require any additional information regarding the protection of intellectual property rights in the case of mergers and acquisitions, you are invited to contact the undersigned.
Paul Sharpe is a Partner and Registered Patent Agent in our Intellectual Property Group and can be reached at 613.567.0762 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it. .
New brand coming soon
The New Year is almost upon us and we are busy preparing for some new and exciting changes at MBM that will be taking place very soon!
We live in a world driven by technology that changes daily and so we understand the need to stay current and keep up with these demands. Our business needs and your needs have grown over the years and we are pleased to announce that in the New Year many of our software systems will be going through an upgrade process which in turn means even better service to you. There will be no interruption in our service to you as our primary goal is to continue to provide the highest quality service to all our clients.
We are also thrilled to announce that in addition to many of these upgrades and improvements the MBM brand will be changing too! Our same experienced team is still here but we will soon have a new look that will better reflect who we are and the positive changes we are making. We look forward to sharing our new look over the coming weeks. We won’t keep you in suspense for too long so please stay tuned.
What is SOPA? And what happened?
Kamaldeep Sembi, February 2011
Much has been made regarding the recent flurry of media coverage over the Stop Online Piracy Act (SOPA). This article briefly summarizes the key aspects of the United States bill itself, implications for Canadians, and what lies ahead.
What is SOPA? And what happened?
The Stop Online Piracy Act (SOPA) is aimed to increase the scope of current law enforcement mechanisms in the United States to combat copyright infringement and counterfeit goods. Proponents of the bill championed the initiative stating that new tools will provide effective protection for intellectual property rights, while conversely critics argued the legislation is overbroad, extending to suppress fundamental rights such as freedom of expression and causing unnecessary censorship of the internet.
Within the bill several key provisions were seen as contentious with one example being section 102 which states that service providers shall technically prevent all its subscribers from accessing foreign infringing websites. This type of provision is aimed at curtailing large scale piracy havens such as “ThePirateBay.org” whose operations fall outside United States jurisdiction. It is, however, the technical measures imposed by law for service providers to block access to foreign websites for all its subscribers that leave many questioning how far the law may extend. The technical blocking of full websites by their Domain Name System (DNS) is argued by some to change the technical nature of internet operations and in effect censor certain websites from subscribers.
Examples like the one mentioned above were used as a lightning rod to mobilize content users and content distributors. The movement gained an enormous amount of traction; even the White House took a position stating that although they are in favour of increasing protection surrounding copyrighted content, they will not support legislation that reduces freedom of expression.
Furthermore, industry heavyweights such as Google, Facebook, Yahoo!, and Twitter entrenched their position of opposing the bill. On January 18th many commonly accessed websites including Wikipedia.org “blacked-out” their websites in protest to bring awareness to the issue.
Finally on January 20th Lamar S. Smith, the congressman who introduced the bill, pulled the legislation off the table, citing that a revisiting of the issue was required in order to properly address the underlying problems.
Canadian Implications of SOPA
As Canadians, one would likely not be worried about foreign legislation as the relative impact would be minimal. SOPA, however could have had far reaching implications beyond the borders of the United States. The two main focal points of discussion are the extra-jurisdictional reach afforded, and heavily used content services being altered.
To the first point, the bill affords “in rem” jurisdiction with respect to any website that does not fall within the jurisdiction of the United States. In effect, any foreign website would be treated as a domestic one for purposes of enforcing tougher copyright enforcement provisions. Furthermore, if the aggrieved party wishes to challenge allegations, the jurisdiction is designated to United States courts.
While the first point is more of a legal argument for most, the second point targets the masses. Websites such as YouTube, Google, and Facebook (which are used heavily by Canadians), could have their basic operations reconfigured due to SOPA. Namely, a “chilling effect” of available services and content could ensue, whereby users would be reluctant to post potentially legitimate content and website moderators would take down potentially legitimate content in fear of legal repercussions.
Therefore, while not purely exclusive to Canadians, the global effect with “in rem” jurisdiction and potential revised functionality of major content providers could have large implications for the general population.
What Lies Ahead
While SOPA is currently dead, the underlying issues are not. Another bill is likely to succeed SOPA implementing a new strategy to combat copyright infringement and counterfeit goods.
The consensus amongst all is that greater protection measures should be employed to defend content creators. The disagreement lies in the implementation. A telling quote is that of respected Apple co-founder Steve Wozniak who is quoted in the Vancouver Sun on January 24th as follows:
“I have friends in the music industry and in the movie industry who are being hurt by piracy. They need to be protected. I am an inventor with patents and I understand the need for protection. I do have strong feelings that what SOPA is trying to do is proper and needed. I just don’t trust the people who would enforce this bill. It gives them far too much power. It looks like the electronic version of the Patriot Act, which I am also against. Our own civil liberties and constitutional rights would be trampled again.”
This sentiment seems to be echoed by the majority of the parties involved in that the ideal of superior intellectual property protection should not be achieved by restricting internet neutrality and fundamental rights.
Remarks made by SOPA’s chief sponsor Lamar S. Smith cited the need for a new approach and further consultations with industry leaders. Many would see this as a positive note, as the chief sponsor has communicated that a clear and novel analysis of the issues is essential to the process going forward.
Best Mode in Canada
Best Mode in Canada
Stuart Bristowe, Ph.D. September 1st, 2012
In the United States according to 35 U.S.C. 112 “the specification….shall set forth the best mode contemplated by the inventor of carrying out his invention.” As is readily apparent from this language, this best mode requirement for U.S. patent applications is relevant to all technologies.
In Canada, according to Section 80(1)(f) of the Patent Rules, the description shall set forth at least one mode contemplated by the inventor for carrying out the invention in terms of examples. Furthermore, there is a best mode requirement specifically defined in the Patent Act, however it is not as definitive as that of the United States. In Canada, Section 27 (3) of the Patent Act defines the requirements of the specification for a patent application. This section outlines the necessary requirements of the specification which include for example, correctly and fully describing the invention, setting out clearly the various steps in a process, method of constructing making or using a machine manufacture or composition of matter. However, when outlining the requirement of best mode, this section of the Patent Act solely limits the best mode requirement to a machine. Specifically, Section 27(3)(c) defines that the specification of an invention must “in the case of a machine, explain the principle of the machine and the best mode in which the inventor has contemplated the application of that principle”.
It is important to note that the requirement of disclosing the best mode in a specification has essentially been extended to all technologies and not just limited to a machine type invention, based the outcome of the Federal Court Trial Division decision regarding Thomas & Betts Ltd v. Panduit Corp. (1997). The Court determined that the inventor has a duty with the fullest of bona fides to describe the best way known to them of carrying out the invention.
When determining what to integrate into a patent application in terms of describing the best mode, it is important to consider the relevant date with respect to testing for the best mode. In the past, this relevant date had been determined to be the filing date of the patent application or the Paris Convention priority date, if this is deemed relevant to the particular case. However, in 2000 the Supreme Court of Canada established the relevant date in two separate decisions, namely Free World Trust and Whirlpool. The SCC firmly established that the relevant date is the date when the public first became aware of the patent application, which is typically 18 months after filing.
It is apparent that this revision to the relevant date for determining the best mode may cause some potential issues when one considers the language of Section 27(3)(c) of the Patent Act, wherein it is defined the requirement relates to the best mode in which the inventor has contemplated the application of the principle of the machine.
As is known, no new subject matter can be added after the filing date of the application. Rather, all amendments must be fully supported by the application as originally filed. As such there is a potential incongruence regarding the disclosure requirement of the best mode, particularly if the best mode has been “contemplated” by the inventor after filing of the application but before its publication.
As such, when preparing a patent application for an inventor, it can be advisable to ask the inventor to speculate as to potential improvements to their technology, and to integrate these potential improvements into the application, assuming that these potential improvements have a reasonable probability of success. In this manner, should it be later established that at the time of publication the best mode includes one or more of these potential improvements, it can be argued that the best mode has been appropriately disclosed in the patent application in question.
For more information please contact Stuart Bristowe
