Managing IP Ownership and Licensing in Corporate Transactions

Intellectual property is often the most valuable asset a business owns. It is also one of the most commonly mishandled in corporate transactions. IP issues that should have been spotted in due diligence get discovered after completion. Licences that were assumed to be transferable turn out not to be. Ownership chains have gaps that no one filled. Here is what to watch for.

Why IP matters in transactions

In M&A, capital raisings and corporate restructures, IP value drives everything from valuation to integration. Buyers and investors want certainty that:

• The company actually owns the IP it claims to own
• The IP can be transferred or used by the buyer post-completion
• There are no third-party rights or claims that could affect the IP
• The IP has been properly registered, where registration is available
• The licences in and out of the company are commercial and consistent with the deal

Gaps in any of these areas reduce value or, in the worst cases, derail the deal.

Common IP categories

The major categories of IP in most businesses include:

• Patents: Registered rights over inventions
• Trade marks: Registered or unregistered marks for brands, products and services
• Copyright: Automatic protection for original works (software code, content, design)
• Designs: Registered protection for the visual appearance of products
• Confidential information and trade secrets: Unregistered, but often very valuable
• Domain names and digital assets: Often overlooked, but critical
• Data assets: Datasets, algorithms and AI models, an increasingly important category

IP due diligence

A proper IP due diligence covers:

Ownership. Is the IP actually owned by the entity being sold (or invested in)? Common gaps include IP held personally by founders, IP held by other group entities, and IP not properly assigned by past contractors or employees.

Registrations. Are all registrable rights actually registered? Are the registrations current and in the name of the right entity?

Encumbrances. Are there any security interests, licences out, or other encumbrances on the IP?

Licences in. What third-party IP does the business depend on (software, content, technology)? Are the licences current, transferable on a change of control, and adequate for the business going forward?

Open source. Is the business using any open source software? Are the licences being complied with? Some open source licences can have surprising consequences (such as triggering disclosure obligations on derivative works).

Disputes. Are there any current or threatened IP disputes? Any letters of demand received or sent?

Employee and contractor IP. Are all current and former employees and contractors properly assigned? Many contractor agreements either don't address IP at all or assign it inadequately.

Pre-transaction clean-up

Identified IP gaps should generally be fixed before signing. Common clean-ups include:

• Assignments from founders or related entities
• Backdated assignments from contractors and employees
• Updating registration ownership records
• Resolving open source compliance issues
• Documenting trade secret protocols and access controls

IP in the sale agreement

The sale agreement should address:

• A schedule of IP being transferred or assumed (with appropriate detail)
• Warranties on ownership, registration, infringement and licences
• Indemnities for specific identified risks
• Mechanics for transferring registered rights (filings, recordals)
• Treatment of licences requiring counterparty consent
• Continuing rights and obligations under any retained IP licences

Licensing structures

Many transactions involve continuing IP licences, either:

Inbound: the seller licenses IP to the target post-completion (common where the seller retains certain technology or brand rights)

Outbound: the target licenses IP to the seller post-completion (common in carve-out transactions)

Cross-licences: mutual licensing between buyer and seller

These licences need careful drafting, including scope, duration, royalty (or no royalty), exclusivity, sub-licensing rights, and termination.

Common pitfalls

• Founders holding key IP personally (particularly common in technology businesses)
• Inadequate or missing contractor IP assignments
• Open source non-compliance, including unintended copyleft obligations
• Trade marks registered in the wrong name or jurisdiction
• Assumptions about software licence transferability that turn out to be wrong
• Inadequate trade secret protocols
• Failure to register key registrable rights early enough
• Confusing IP ownership in joint ventures or development arrangements

How Luma Legal can help

We advise on IP issues in corporate transactions, working alongside specialist IP lawyers where appropriate. We run IP due diligence, identify and fix gaps, and draft the IP provisions of sale agreements and licensing arrangements. Our role is to make sure that what the buyer thinks it is getting is what the buyer actually gets.