Due Diligence: Questions to Ask Before Purchasing a Business’ Intellectual Property
An often overlooked part of purchasing a business is the transfer of intellectual property rights. Included in these rights is copyrights, trademarks, patents, and other non-disclosure rights. Today’s post details three basic questions you should ask before you purchase a business.
Can the business’ logo be transferred as part of the purchase?
There are situations where even if the logo is transferable, you may not want to transfer it. If the logo infringes on the intellectual property rights of another business, you shouldn’t transfer ownership (since you would be liable for the infringement once you own the logo).
Furthermore, the logo may not be transferable if it is being used by the seller under a license agreement that does not allow for assignment to a new purchaser. These are just two examples of the issues you may run into when transferring the logo of a business. You should be aware of these things and understand that a logo may or may not, and should or should not be transferred pursuant to a sale of a business.
If you buy the business, do you automatically own the website as well?
Most people would assume that if you bought a business the website of the business is included in the sale. However, this isn’t typically the case. The purchase and sale agreement needs to include specific language to transfer the intellectual property rights associated with the website. Also, even if the purchase and sale agreement includes sufficient language, the seller must have the right to transfer the intellectual property rights. Many businesses contract with web developers to create a website. If the web developer did not give the business the right to transfer the intellectual property rights to the website, then the seller does not have the right to transfer the ownership of the website and its intellectual property. If this is the case, it makes it extremely difficult for you (as the buyer) to maintain and make any changes to the website without the original developer’s assistance. This can be a huge headache as a business owner, and should be sorted out before purchasing a business.
Can a non-disclosure agreement (NDA) between the seller and a third party be enforced by the purchaser of the business?
It depends. Two important questions to ask related to this issue: Did the purchase and sale agreement (and the bill of sale) assign contract rights in the NDA to you? Did the NDA allow for assignment of the business’ rights? If the answer is yes to both of these questions, then you can enforce the NDA against the third party. This can important to protect the business’ trade secrets and other confidential information that may have been released to the third party.
It’s important that you explore these three questions, among other things, as part of your due diligence when purchasing a business. Failure to sort of the intellectual property aspects of the sale can lead to significant hassles (and potential lawsuits) down the road. As is the case with any complex business transaction, you should consult with a team of professionals to help guide you through the purchase and sale of a business.
If you’re interested in learning more about acquiring a business and its intellectual property rights, please feel free to contact us for your free consultation today.