Contribution of an intellectual property right to a company

The contribution of an intellectual property right to a company is the transaction by which a person transfers a patent, a trade mark, software, a design or know-how to a company in exchange for shares. It is governed by Article 1843-3 of the Civil Code, which distinguishes a contribution of ownership, treated as a sale, from a contribution of use, treated as a lease, and by the transfer rules specific to each right, in particular Articles L. 613-8 and L. 714-1 of the French Intellectual Property Code.

Forms of contribution

A contribution of ownership transfers the right permanently to the company, which becomes its owner and may exploit, assign or pledge it. A contribution of use gives the company only a right of exploitation for an agreed period, the right remaining in the contributor’s estate and reverting to the contributor on dissolution. This second form, close to a licence, allows a founder to keep the title while putting it at the company’s service. Know-how and copyright may also be contributed, but the formalities of Article L. 131-3 IPC apply to a contribution of copyright and a global assignment of future works remains void. A contribution of services, which covers work or skills, must not be confused with the contribution of a right.

Valuation and the contribution auditor

The contribution of an intellectual property right is a contribution in kind. In joint stock companies and limited liability companies, it must in principle be valued by a contribution auditor, whose report assesses the value adopted, save for exemptions provided by statute below certain thresholds and with the unanimous consent of the shareholders. The valuation must rest on a justified method, since overvaluation engages the liability of the contributors and directors and may constitute an offence. The value adopted then serves as the basis for amortisation in the accounts and for calculating future capital gains.

Transfer and enforceability

A contribution of ownership of a patent or trade mark must be recorded in writing and is enforceable against third parties only once recorded in the national register kept by INPI, and in the EU register for European Union titles. Until recordal, the company cannot bring infringement proceedings and third parties acting in good faith may disregard the transfer. The contributor is bound by the warranty against eviction in the same way as a seller. For tax purposes, the contribution of a patent or similar asset by an individual may, subject to conditions, qualify for deferral of tax on the capital gain, which warrants prior analysis.

Key points

An intellectual property right may be contributed by way of ownership or of use, and the contribution is a contribution in kind subject to valuation. It must be in writing, recorded in the register to be enforceable, and covered by the contributor’s warranty against eviction. Check the ownership and validity of the right, choose the form of contribution in line with the founder’s strategy, and plan for the tax treatment of the capital gain on contribution.

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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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