IPs and IPRs

A business is in financial difficulty, possibly already in some kind of insolvency procedure. One of the first, often urgent, tasks for an IP is often to secure the assets. It is usually straight forward with physical assets, buildings, cars, vehicles, machinery, and stock and so on. Hopefully any cash will have been secured and bank accounts frozen. But further investigation may reveal that the business is rumoured to have some “intellectual property rights” (IPR) and these too need to be understood and secured.

What are IPRs?

Remember that ‘intellectual property’ means different things to different people. To a lawyer it means specific rights such as patents, trade marks, designs, copyright, data, and software. To a lot of people in the technology world it means these rights plus back ground know how, specific research data, and so on, a mass of confidential information which will be difficult to pin down and control. The Inland Revenue have a nasty habit of labelling intellectual property in a much wider context in the hope of grabbing extra tax. So, it has been known for the Revenue to label as “intellectual property” a computer system or a group of people operating a computer system, and so on.

Confidential information if technical and related to products or technical processes can be valuable too because the law will protect it. But business information such as financial data, marketing plans and so on is much harder to protect and less valuable.

So how do I identify these IPRs?

This can be difficult. Some intellectual property is registered so a search of the register should reveal if the business has any registered rights which could be patents, designs or trade marks. These have to be renewed from time to time and so a check should be made to find out if these registrations are in force, in other words, have been renewed as required or if a renewal date is imminent. A search should reveal this also. Sometimes the IPRs may have been moved around inter group or transferred to a buyer. The title should be checked carefully to make sure the chain of title is complete. Each brand in the portfolio is likely to be a registered trade mark and each will need to be checked that it is in force (that the renewal has been paid etc) and owned by the company in question. This can take time with a substantial portfolio.

However some intellectual property rights exist without registration. A brand or logo may have so called ‘passing off’ rights which simply arise through use in trade and not registration. Similarly protection for designs can exist without registration under the EU and UK design laws. Confidential know how may exist. Checking for these rights is more difficult as it requires background information to establish the context and extent of the use. Once this information is available, whether IPRs exist in the know how, brand, or design and the ownership of these rights should be clearer. However, to establish title of these unregistered IPRs will often need the co-operation of individuals and access to documents. This is sometimes not easy in the circumstances where a business is in financial trouble. Not everyone is prepared to co-operate.

Third party claims to own the IPRs

In nearly every business, some work will have been commissioned from sub-contractors. This typically includes website design and content, brochures, technical drawings, designs, and so on. Investigating the background to establish the existence of IPRs should throw up information suggesting that these IPRs might belong to a third party who or which was commissioned. If so, further checking in to the background will be required. First, to confirm whether any terms and conditions were in place to ensure that the business which commissioned the work owns the IPRs. The answer is often that there are no such terms or the documents cannot be found. Consequently, the title to what has been created – product designs, website and brochures etc. – will be uncertain. Under some laws the rights will belong to the third party. So, for example, under UK design right law a commissioned design (eg a product design) will have ‘design rights’ which belong to business which commissioned the work. But a copyright work (a website) will have copyright which will belong to the person or business which created it if there is no agreement to the contrary. These difficulties can be hard to resolve quickly and they usually involve the payment of further money to transfer the rights over or enforcing the rights through the courts which also involves money being spent and often delay.

Now I have identified these IPRs – are they worth anything? 

Once the intellectual property rights are identified and it has been established that the business has title to them or the title has been resolved satisfactorily, the next question is what to do with the intellectual property rights.

The usual aim is to realise the value of the intellectual property rights either as part of the business sold as a going concern or on a break up basis. In either scenario, accurately valuing intellectual property rights is difficult. Sometimes it is just impossible. What is the value of a portfolio of patents as security to a bank for a substantial loan? Absent the business in which the patents are used, the patents might have an unpredictable value. Occasionally, a patent will protect a product which is red hot. Such patent can have real value and its value can be based on the likely revenue derived from the protection from competition given by the patent. Similarly in relation to a well-established brand, the future revenues can be used to value the brand for the future.

In each case, the past can be used as a guide to future as value accepting that the future may not be the same as the past. So if there is a track record of sales which can be directly associated with the IPRs, then data will be available, historical and anticipated future data, on which perhaps a value calculation can be undertaken to establish some idea of what the intellectual property asset might generate in turnover and profit. Good intellectual property rights can enable an element of ‘super profit’ to be generated from higher margins or increased market share. Intellectual property rights with these attributes are comparatively rare but are valuable. But even these intellectual property rights will have a less certain value separate from the business in which they are or have been used.

If there is no such information available, the IPRs are likely to have a low value because there is no data on which to assess the value. In these circumstances, all that can be done is to seek a market value perhaps by advertising the intellectual property rights for sale in a suitable number of places and see what the market offers. Typically no one is interested except the person who founded the business which is in trouble and wants to buy them back and start again. Absent any ready market for the IPRs, and absent any competing offers, the IP will have to accept the best offer from the only person interested, namely the person who is looking to start the business again. If prudent steps have been taken to secure alternative offers, it would be difficult to challenge the sale of the IPRs at an under-value since determining what the value is in the first place is almost impossible in these circumstances.

Equally difficult is the value to be ascribed to a substantial portfolio of brands where it is often difficult to identify which brands are the ones that generate the sales and those that do not. If there is a stand out brand, it is possible to attribute more of the revenue to this brand than perhaps to others. Perhaps where there is such a stand out brand, the IP practitioner is left with a large portfolio of other brands the value of which is difficult to assess. Again, the only approach will be to advertise the brands for sale with or without the business in which they have been used and to seek the best price for the brands in competition in business or without it.

Transferring IPRs

Finally, when the insolvency practitioner has identified the assets, checked they are still in force, established title, found a buyer at a reasonable value, there just remains the transfer of the intellectual property rights. A relatively straightforward written assignment document will be sufficient to transfer the rights. No doubt the IP practitioner will decline to give any warranties or indemnities which will help to make the agreement simple. If the intellectual property rights include rights in other jurisdictions, then the transfer may need to comply with the local law in the jurisdiction where the intellectual property rights are registered or take affect. It will usually be for a buyer to comply with other formalities such as the registration of the assignment, payment of any required fees and so on. Sometimes the buyer asks for a “further assurance” clause by which the seller agrees to help to perfect the transfer should there be any matters to be resolved after completion of the sale. Who pays for this further work is often the source of disagreement.