A Few Questions Buyers Should Consider to Protect Intellectual Property Rights When Purchasing a Business
When purchasing a business, buyers often overlook one important part of the purchase: formally transferring the seller’s intellectual property rights to the buyer. The most common IP rights include copyrights, trademarks, patents, and trade secrets. Today’s post highlights three simple questions buyers should ask before purchasing a business.
Can you and do you want to transfer the business’ trademarks?
In most purchases, trademarks will be easily assignable from the seller to the buyer. However, in some situations even if the trademarks are assignable, you may not want to acquire them. For example, if the business’ logo infringes on trademark rights of another business, then you wouldn’t want to transfer ownership of the logo and risk being held liable for trademark infringement once you own the logo.
In other situations, the trademarks may not be assignable if the seller does not have the right to transfer ownership to you. Trademarks may be subject to a license that does not allow the seller to assign the license (or use of the trademarks) to a new purchaser. These are just two examples of the issues you may run into when transferring the business’ trademarks.
Whenever you transfer ownership of a trademark to a new person or entity, you’ll need to take steps to formally assign the trademark registration from the seller to you (or the business). You can search the USPTO database to determine if the trademarks are federally registered. Because you may need the seller’s help to properly transfer the trademarks (and other IP) post acquisition, you should consider a “further assurances” clause in your purchase agreement to bind the seller to do what is necessary post-closing to ensure you can actually see that you get what you bargained for.
Will you automatically own the website after purchasing the business?
Many people assume that when you buy a business the company’s website is automatically included in the sale. This isn’t always the case. And this misunderstanding can lead to significant delays and expenses post acquisition. Your purchase and sale agreement should include specific language regarding the transfer of the intellectual property rights associated with the website, including access to the website, ownership of the content on the website, and ownership of the domain.
Also, even if you include the right language in your contract, the seller must also have the right to transfer ownership to you. Most companies work with web developers and designers to create the company’s website, and often the ownership and transfer of the rights to the website (especially the content) is restricted by the developer or designer. If this is the case, it can be tough to maintain and make any changes to the website without the original developer or designer’s assistance and consent, which can be expensive. Depending on the type of business and the emphasis on the company’s online presence, this can be a major issue that should be sorted out during the due diligence phase of purchasing the business.
Can a non-disclosure agreement protecting the seller’s IP from disclosure by a third party be enforced by the buyer?
There are two important questions to ask to try and sort this out: Does the purchase and sale agreement include language that assigns contract rights in the NDA to you? Does the NDA allow for assignment of the business’ contractual rights? If the answer is yes to both of these questions, then the buyer can likely enforce the NDA against the third party. If they answer to either is no, then the buyer is likely unable to enforce the NDA. NDAs can be important to protect the business’ trade secrets and other confidential information that may have been disclosed to the third party, so it is important to understand what you are getting (and what rights you might be terminating) by purchasing the business.
In addition to a long list of other issues to consider during due diligence, it’s important that you explore these three questions to avoid any surprises regarding the company’s intellectual property and your rights to continue to use and protect it. Failing to sort out IP issues during the purchase process can lead to significant hassles and unnecessary liabilities for the buyer.
If you have questions about buying or selling your business or navigating the due diligence aspect of the sale, please comment below or contact us to discuss your purchase or sale.