Intellectual property in mergers and acquisitions

Mergers and acquisitions entail the transfer of the intellectual property rights of the target or absorbed company, in ways that depend on the technique chosen. A merger or demerger results in a universal transfer of assets under Article L. 236-3 of the French Commercial Code, whereas a share sale leaves the rights in the company and an asset sale or sale of a business requires a title-by-title transfer. The choice of structure determines the formalities, the consents required and the risks.

Transfer according to the structure of the transaction

In a merger, patents, trade marks, designs, copyright and trade secrets pass automatically to the absorbing company without a separate deed of assignment, but the transfer must be recorded in the national register and the European registers to be enforceable against third parties. In a share sale, no right is transferred and the titles remain with the company, but the contracts it has entered into may contain change of control clauses. In an asset sale, each right must be the subject of a written assignment complying with its own formal requirements, in particular Article L. 131-3 of the French Intellectual Property Code for copyright and Articles L. 613-8 and L. 714-1 IPC for patents and trade marks, followed by recordal.

Fate of licence agreements

Inbound licences, under which the target exploits third-party rights, are often granted in consideration of the licensee’s identity. Many provide that they are non-assignable, that they terminate on a change of control or that the licensor’s approval is required. A universal transfer of assets does not override these clauses, and the transaction may cause the target to lose a licence essential to its business. Outbound licences pass with the licensed right and bind the acquirer, as do commitments to license on fair terms given in respect of standard essential patents, which follow the patent into the hands of its new owner. Listing these contracts is one of the purposes of due diligence.

Warranties and the transitional period

The acquisition agreement contains representations and warranties on ownership, validity, maintenance in force and the absence of litigation affecting the rights, backed by an indemnity covering infringement disputes arising before completion. Where the seller retains trade marks or patents, a transitional licence allows the acquirer to continue exploitation during the migration, and a non-compete clause protects the know-how transferred. Unassigned employee copyright and domain names held personally by directors are the most frequent oversights, to be regularised before completion.

Key points

A merger transfers intellectual property rights automatically, a share sale leaves them in the company and an asset sale requires a formal transfer title by title, recordal in the register being necessary in every case for enforceability. Change of control clauses in inbound licences are the main risk. List the titles and contracts, regularise the chain of title and plan the recordals before completion of the transaction.

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This glossary entry is general in scope and does not constitute legal advice.

Dhenne Avocats litigates patent disputes before the Paris Judicial Court, the Paris Court of Appeal and the Unified Patent Court. When the question arises in a real case, the right moment is almost always before proceedings are issued.

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