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Presentation Plan

Different categories of IP assets of a company.

Valuation of IP assets.
Aligning the IP assets being acquired.

Means of acquiring IP assets of a Company


Transfer of Domain names
Tax considerations
Foreign Laws impacting on IP.
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Introduction: What is IP?


Most creations resulting from human endeavors in various fields of art, literature
,science and technology constitute Intellectual Property

Ownership
Valuable Assets

Special Rights

Intangibles

Intellectual Property

Transferable

Time &
cost intensive

Additional Profits
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Why are IP assets important ?

Its creation is both time and cost intensive

Requires an assembled trained workforce for


its creation
Requires building of goodwill through
advertising programs
Generates Customer loyalty
Adds to commercial value of organization
Its exploitation brings consistent additional
profits to an organization
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Trademark &
domain names

Copyright

Trade secrets

Patent

Categories of
IP rights
Utility model/Designs

Geographical
Indications

Plant Breeders
rights

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Different Acts governing IP assets


Trade Marks

Patents
Copyright

Designs
Geographical Indications

The Trade Marks Act, 1999


The Patents Act, 1970
The Copyright Act, 1957
The Designs Act, 2000
The Geographical Indications
Of Goods Act, 1999
The Protection of plant varieties and

Plant Varieties

Farmers Right Act, 2001

Semi conductor IC layout

Semi conductor IC layout design


Act,2000
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Rights that different IP assets protect

Intellectual Property can be clearly distinguished from Goodwill. UK


& Australian Generally Accepted Accounting Principles (GAAP) has
specified goodwill as an umbrella concept consisting of
unidentifiable intangible assets and should not include those
Intellectual Properties which are capable of individual identification
and can be sold separately.
Copyright- is a bundle of rights granted to an author of an artistic,
literary or musical work to print ,publish and sell copies of his work
and other allied rights. Copyright protection also extends to
cinematographic film and sound recordings.
Designs- The designs entitled to protection are new and original
designs having aesthetic value which have not been previously
known or published in India or elsewhere.

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Trademarks- is an identification symbol which may be a word, a


device, a label or numeral etc. or a combination thereof used in the
course of trade that enables the purchasing public to distinguish one
traders goods from similar goods of other traders
The purpose of Brand is:
To uniquely identify a company and its product.
To differentiate them from competitor.
To enhance the perceived value, the quality and satisfaction that a
customer experiences.
To evoke distinct associate stands for certain personality traits and
carries emotional
attachment.
Above all brand is supposed to inspire trust. Trust failure can lead
to brand failure and brand failure can be fatal.
Patents- is the grant of a monopoly right to an inventor who has
used his skill to invent something new.

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IP adds value at every stage of the


innovation and commercialization process

Patents /
Utility Models

Industrial Designs
Trademarks

Invention

Trademarks,
Ind. Designs,
Geo. Indications

All IP rights

Commercialization
Marketing
Financing

Exporting

Product Design
Licensing

Literary / artistic
creation

Copyright

All IP rights
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The IP of Gillette
Gillette Company
Value($)
Asset Values in US $

Total

Working Capital

2,850

4.9%

Fixed/other assets

5,131

8.8%

Intangible assets

5,854

10.0%

IP

44,700

76.3%

Total Invested
Capital

58,535

100%

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World's three most valuable


trademarks!

1992 Financial Week


listed, as the world's
three most valuable
trade marks,

"Marlboro", worth 31
billion US dollars,
"Coca-Cola", worth 24
billion US dollars,
and "Budweiser", worth
10.2 billion US dollars.

35
30

Coca-Cola

25
20
15

Marlboro

10
5

Budweiser

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IP- Duration of Term of Protection

Patents (20 years)


Trademarks (10 years + renewals)
Copyrights in published literary, dramatic, musical, and artistic works (Lifetime
of author +60 years).
Copyright in photographs ,cinematographic film, sound recordings (60 years
from year in which it was published)
Broadcast reproduction right-(25 years from the beginning of the calendar

Performers right-(25 years from the beginning of the calendar year next

year next following the year in which the broadcast is made.)


following the year in which the performance is made)

Industrial designs (10 years+ renewal permitted once for 5 years )


Trade-secrets and know how collectively proprietary technology (contract
period-protected by contract provisions, doctrine of breach of trust)

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IP-Flow in Mergers and


Acquisitions

A merges into B
Company A (Owns IP) -> Surviving company (B)

(IP of A becomes property of B)


( IP of A transferred to B)

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IP-Flow in Mergers and


Acquisitions

In a corporate acquisition, there is no transfer of


interest in the IP.
Company A, which owns the IP, gets acquired by
Company B and by virtue of such acquisition, Company
B gets control over all assets of Company A, including
its IP.
In a takeover, the ownership over the IP continues to
remain with the Target Company, though the acquirer
company gets effective control over the IP

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How to determine the Value ?


What underpins the cash flows of this business - fixed assets, people ,IP assets , knowhow ?
business

Fixed assets

People

Once you have worked out


what drives the value make
sure that it is still there
after
you have acquired
the business!

Intangibles - usually a part of business valuation


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Brand valuation

The modus operandi of the valuation would vary in each case as


they are strongly influenced by existing environments.
The environments broadly are internal & external environment and
the major variables are internal strength, marketing scenario,
consumer perception, technical know-how and its changing speed,
growth prospective, competition scenario, government policy,
impact of globalization among others.
To valuate a brand and other intellectual properties the valuator
requires careful analysis, keen judgment, thorough professional
knowledge and a team of members who have expertise in finance,
marketing, technical know-how, and in legal fields.
There are forty odd variables, which in generic term are called
environments that affect the value of the brand.

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WHY DO WE NEED IP VALUATION?

Intangible benefits-

Enhanced Confidence ,Indicator of effective utilization ,


Credibility to the real worth, Strategy development

Tangible Benefits in Mergers and Acquisitions-

A) Can help in Capitalization: A Balance Sheet which incorporates a brand value provides a more
realistic picture and goodwill arising from an acquisition can be reduced as goodwill invariable
needs to be amortized where as the brand value can stay in the Balance Sheet giving more realistic
presentation of capitalization
b) Merger & Acquisition: It is of critical importance for an acquirer, as well as for the vendor to
understand and evaluate their real worth for negotiating the correct price. As the valuation report
does not only indicates value, the report also shows as to how the value has been worked out
elaborating all assumptions, which provides the real insight and would be of great value to the
acquirer

C) For taxation purpose: Taxation department desires that all such transfers must be executed at Arms
length transaction. Valuation certification from an independent establishment of repute is the best
way to establish that the value of transaction as reflected is a true value

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Reasons Why IP is Ignored


Under estimation
of its
importance

Lack of Awareness

Time Required for Grant


of a Patent/registration of TM

Myth that it cant be


computed /valued

Cost of Patenting

Enforcement of IPR
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Importance of Intellectual Property due diligence

The increased profile, frequency, and value of intellectual property


related transactions have elevated the need for all legal and
financial professionals and IP owner to have thorough
understanding of the assessment and the valuation of these assets,
and their role in commercial transaction
Intellectual Property due diligence generally provides vital
information specific to future benefits, economic life and ownership
rights and the limitations of the assets all of which affects final
value.
Therefore due diligence is prerequisite to the valuation process,
regardless of the methodology used.
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IP due diligence in Mergers & Acquisitions

IP Due diligence is the process of investigating a partys ownership, right to use,


and right to stop others from using the IP rights involved in sale or merger ---the
nature of transaction and the rights being acquired will determine the extent and
focus of the due diligence review.
Due-diligence should reveal
Who owns the rights?
Are the rights valid and transferable and enforceable?
Are there any agreement or restriction that prevent the party for granting rights to
other?
Is the property registered in the proper office?
Any shortcoming or default on payment?
Any past or potential litigation?
Has the property being misused in the past rendering right unenforceable?
Any encumbrances?
It should also evaluate agreements material to the companys business that may be
affected by change of control, agreements that may vest rights in intangibles, and
company policies and practices.

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Pre-due diligence formalities

Before the due diligence commences, counsel of both the parties


must consider important legal issues related to conducting the due
diligence such as confidentiality obligation of the target company
and execution of the due diligence should also be arranged between
the parties
Legal basis for due diligence-often starts in the form of letter of
intent or memorandum of understanding and commonly regulates
the due diligence process. Confidentiality agreement between buyer
and Target Company is one of the necessity and both should ensure
that it is carefully drafted and shall include the scheduling, modus
operandi and deadlines, with due emphasis on Attorney-Client
privilege

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The scope of Intellectual property due


diligence

The scope of Intellectual property due diligence will be determined by a


number of factors such as parties goal in the transaction such as capital
contribution, assets transfer, security of loan, or internal assessment of its
own and will be influenced by budgeting, available human resources, the
size and complexity of target company and its intellectual property portfolio
among other such issues.
Buyer having done the preliminary due diligence with respect to current
status of Intellectual Property portfolio should evaluate the portfolio with
respect to function strategy to work out:

Ownership strategy.
Protection strategy.
Exploitation strategy.
Enforcement strategy

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Preliminary assessment

Target company should make a preliminary assessment


of the current status of its intellectual property portfolio
and management including:
Current holding and their status.
Goals for the portfolio.
Historical and prospective investment in Intellectual
Property
acquisition, protection and exploitation.
This would also help the target company to define its
perspective. If the due diligence were being conducted
for internal purpose the goal would be quite different
than the due diligence for external reason.
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What an IP attorney ought to consider

The most significant provisions of the agreement from the IP


attorneys perspective are: (1) definitions of assets and IP; (2) the
scope of the transfer; and (3) representations and warranties.
the representations and warranties, indemnification provisions, and
disclosure schedules
Disclosure schedules are also critical because typically the seller is
not liable, unless the purchase agreement otherwise provides, for
any monetary damages resulting from disclosed events.
Due diligence conducted at three levels-personal interviews,
document review ,and independent investigation

Review of Agreements material to the companys business that

may be affected by change of control

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Independent investigation methods

Due diligence check at Indian


registries of patent ,trademark
and copyrights, designs
U.S. and foreign patent,
trademark and copyright rights
and filings
PTO, WIPO web sites
Assignment records and
maintenance fee/annuity
records for patents
Commissioned Copyright Office
searches with chain of title
information and information on
any security interest (e.g. lien)
or other encumbrance

UCC filings (security interest)


Internet/news database
searches
Westlaw/Lexis or other
databases re: litigations
Prosecution files and
assignment records
If your clients public, SEC
filings

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DUE DILIGENCE:
What are some typical provisions that might raise a word of caution?
THE ANALYSIS

Anti-assignment
Silence on assignment
Non-exclusive rights
grants to or from your
client
Covenants not to sue (any
covenant!)
Automatic
reversion/transfer of rights
Government licenses

Ambiguous or ineffectual
rights grants
Termination
Loss of rights
Indemnification (especially
if not limited)
Sublicenses
Assignments
Non-compete
Source code escrow
Unusual jurisdiction

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Important checklist-copyright

Scope of Rights (exclusive, non-exclusive)

Grants Effective

Rights Transferable

Assignments in Proper Order

assignment where appropriate

Registrations in Proper Order

No Encumbrances/Liens
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Significant Trademark Issues

Scope of Rights (exclusive, non-exclusive)

Grants Effective

Rights Transferable

Assignments in Proper Order

assignment where appropriate

Registrations in Proper Order

No Encumbrances/Liens
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Significant Trade Secret Issues:

Confidentiality/security precautions and


procedures

Proper markings/legends

Employment agreements

Non-disclosure agreements

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Significant Domain Name Issues:

Verification of record owners

Assignments in proper order

Status of registration and renewal

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Some typical representations and


warranties

Here are some lists of all the IP seller owns, has


licensed from someone else and has licensed to
someone else (see disclosure schedule)
Seller hasnt given any IP or rights away unless its
disclosed
Seller owns or has acquired sufficient rights to exploit
the works in the way it is doing so currently
Good and marketable title
No liens or judgments
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More Reps and Warranties:

All registrations and applications to government entities with respect to IP are


valid and in full force and effect and all registration and renewal fees due up to
closing are paid.
Right to use computer systems and software
No pending, threatened claims against seller unless disclosed
Seller not violating any third party rights unless disclosed
Third party not violating any Sellers rights unless disclosed
No pending, threatened claims asserted by seller unless disclosed
Domain names and trademarks are still in full force and effect as of closing and
no pending or threatened challenge to domain names, opposition, cancellation,
etc. as to trademarks
Assignability of contracts, rights thereunder
Owns rights to customer information, supplier information or other lists included
in the IP assets being sold

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Crucial Factors for IP due diligence

Extent of statutory protection IPRs enjoy


Value of each IPR
Level of risk infringement of third party rights and infringement by others.
With respect to the agreement involving the acquisition, it is critical that the seller
provides appropriate warranties such as warranty that it owns full title in the
intellectual property as well as representations regarding controversies, litigations,
claims of infringement, title disputes, and any other specific matters that are
important to the buyer and the transaction.
Technology Valuation-important considerations
Size: Whether there is market for the product of technology
Scale: scale of operation of technology is appropriate to that market
Maturity: Whether technology is market proven or new
Obsolescence: whether it is about to be replaced by new developments
Environment adaptability: whether technology can be satisfactorily operated in
transferees environments
Appropriateness: Whether technology is appropriate for infrastructure-available
power, telecommunications, transport etc
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ISSUES THAT NEED EXAMINATION WITH RESPECT TO TRADE


AND SERVICE MARKS

Definition of Rights
Registered marks
Pending applications
Trademarks exploited by Target Company but not subject of registration
Ownership
Marks created by Target Company employees
Marks created by independent contractors
Marks assigned to Target Company by third parties
Liens and other mortgages
Third Party Rights
Concurrent use and consent agreements
Licenses from third parties
Freedom to use- Protection/Registration
Status and scope of registered marks
Status and scope of pending applications
Non-registered marks (marketing/registrability)
Proper use of markings
Exploitation
Inventory of products/services on or in connection with which marks are used
Licensing practices- general/misuse
Inter-company licensing practices
Internet use/licensing
Nonuse
Enforcement/Disputes
Target Company threatened, pending actions against third parties
Third party threatened, pending actions against Target Company
Summary, Conclusions, General Comments
Examine and evaluate opinion letter and cease and desist letters.

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LICENSING OF INTELLECTUAL
PROPERTY

Every merger and acquisition poses a Question: whether merging


companies intellectual property license rights would remain intact pursuant
to merger.
General principles of contract law provide that rights under agreements are
presumed to be assignable unless the statute, the contract, or public policy
provides otherwise or there exists a material adverse consequences to the
other party.
Case example: General radio and appliances Co ltd v MA Khader (1986) 60

com cas 1013-facts transferor company in amalgamation was tenant ,rent


agreement specifically prohibited subletting without written consent of
landlord . Landlord instituted eviction proceedings against transferee. Court
held transfer of tenancy rights under scheme of amalgamation was bad in
law being made without consent of landlord.
Similar position in law with respect to trademark and copyright licenses.

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Challenges of Valuing IP Assets in


case of M&A

Assets that may qualify as a company's IP may


be easily overlooked, like;

information maintained in notebooks and/or stored


on a computer by any employee.
a pending patent application assigned to the
company
an invention disclosure from an engineer to
company decision-makers for consideration as to
whether to pursue patent protection,
proprietary software source code developed inhouse.
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Challenges of Valuing IP Assets

Valuing IP assets is often a difficult task because their


true value may not be readily apparent
The value of an IP asset may not be recognized in income
received by the company. Indeed, the full value of an IP
asset is likely never recognized in income because much
of the asset's value resides in the negative right to
prevent others from doing something they would
otherwise be permitted to do
Valuing an IP asset is further complicated because such
value is generally not stagnant. Rather, the value of an IP
asset often changes over time. Consequently, a company
should periodically (e.g., annually) re-assess the value of
its IP assets
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Challenges of Valuing IP Assets


Contd.

The pending patent application is an asset representing


a potentially enforceable right that may be conferred to
the company in the future.
If the company were to be acquired by another, some
value would certainly be attributed to its pending
patent applications as company "assets" in determining
a fair purchase price for acquiring the company.
If the company were to be acquired, no value may be
attributed to the notebooks in determining a fair
purchase price for acquiring the company because the
notebook's content may be largely unknown.
Consequently, a company may possess a vast amount
of IP, some of which is readily identifiable and others of
which are difficult to identify
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Reorganising and structuring deals

If all or most of the IP owned by the corporate seller is


not assignable as a result of the contracts vesting
ownership in the seller, then a stock purchase, in which
the assignability of the assets is not important, may be
preferable to an asset purchase.
In this case, both parties are protected: the seller is not
forced to make representations about assignability that
are impossible to meet, and the purchaser is not forced
to assume the risk of claims of infringement or the
inability to enforce IP rights arising from the ineffectual
transfer of rights.
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Due Diligence for valuation helps


build strategy

If Intellectual Property asset is underplayed the plans for maximization would be


discussed.

If the Trademark has been maximized to the point that it has lost its cachet in the
market place, reclaiming may be considered.

If mark is undergoing generalization and is becoming generic, reclaiming the mark


from slipping to generic status would need to be considered.

Certain events can devalue an Intellectual Property Asset -events in respect of IP


could be adverse publicity or personal injury arising from a product. An essential part
of the due diligence and valuation process accounts for the impact of product and
company-related events on assets - management can use risk information revealed in
the due diligence.
Due diligence could highlight contingent risk which do not always arise from
Intellectual Property law itself but may be significantly affected by product liability
and contract law and other non Intellectual Property realms.

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Methods for valuation of Intellectual


Property

The choice of approach will be


determined primarily by the
type of Intellectual Property
asset is to be valued, the
circumstances of the specific
transaction, the availability of
information and the level of
due diligence that the
corporate is willing to take on.
When multiple approaches are
Cost approach
applied a comparison and
reconciliation of resulting value
is possible.

Valuation Methods

Market approach Income Approach

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Others

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Principles of Valuation

The cardinal rule of commercial valuation


is:
the

value of something cannot be stated in the abstract;


all that can be stated is the value of a thing in a particular place,
at a particular time and in particular circumstances.
Value of an asset or liability is the present value of future
economic benefits or losses that can be reasonably
anticipated to accrue to the owner of that asset or liability.

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Cost based approach

Based on the principle of substitution, i.e., value


of an asset is estimated on the basis of cost to
construct a similar asset at current prices.

Components of cost approach

Cost of reproduction
Cost of replacement
Depreciation cost
Original cost
Book cost
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Cost approach

Valuation Process

Identify historical Costs of developing the intangible


asset, adjust for time value of money
Add an appropriate rate of return to calculate
developers profit
Disadvantage: it seeks to correlate cost with value.
Caution: NOT ALL DEVELOPMENTS BASED ON
INVENTIONS LEAD TO SUCCESSFUL PRODUCTS

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Market Based approach

Estimates the value of an intangible asset based


on market prices of comparable intangible assets
that have been bought/sold or licensed between
independent parties.
Also referred to as the Comparable Uncontrolled
Transaction (CUT) method, and is similar to the
Comparable Uncontrolled Price (CUP) method.

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Requisites

Market Based

An active, public market. assessment of fair market value


An exchange of comparable products
comparison with the sale value of similar assets
There are various elements of comparison, which should be given due
importance while analyzing and comparing the transactions such as,
functional characteristics of intellectual property, physical
characteristics of intellectual property, the size of industry in which
the intellectual property is transferred, the economic condition, the
existence of any special term and the legal rights that have been
transferred.

Limitations:

In practice difficult to find sufficiently


comparable transactions-price information, sales or licensing
statistics usually confidential.
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Income based approach

Estimates the value of an intangible


asset based on the expected income
attributable to the intangible asset during
its remaining economic life.
Also known as Discounted cash flow
analysis

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Income based approach


Contd..
Essential Elements

The amount of
the income
stream that can
be generated by
the property

An assumption
as to the duration
of the income
stream

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An assumption
as to the costs
and risks
associated with
the realization
of the
forecasted
income

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Income based approach


Contd..
Valuation Process
Forecast
income and
costs
associated with
using the
property over
the life of the
property

Compute Net
Present Value
of future cash
flows (use
appropriate
discount rate
reflecting risk
of investment)

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Limitations

Suitable
where fair
Financial
projections
can be made

Estimating
income
Attributab
to intangib
its
economic
life,
appropriat
Discount ra
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Other Approaches

Other Internationally accepted


approaches include:

Market Capitalization method


Profit based methods
Profit split method
The Economic Benefit Approach

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Table shows how big the economic contribution


made by brands to companies

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Instances of Brand Valuation in M&A

In 1988, UK-based GrandMet


acquired the Pillsbury company.
It was estimated that 88% of the
price it paid consisted of
"goodwill" i.e., GrandMet paid
approximately $990 million
(L608m) to acquire the Pillsbury
brand name and its other branded
properties (Green Giant, Old ElPaso, Hagen-Dazs, etc.).

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Tangibl
e
Assets
12%

Intangi
ble
Assets,
88%

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Instances of Brand Valuation in M&A

Volkswagen, bought the


$800
assets of the Rolls-Royce
$700
automobile corporation for
$780m against a net
$600
tangible asset value of
$500
US$250 million
$400
But it somehow did not
include the brand in the
$300
deal...
$200
The rights to use the Rolls$100
Royce trademark were
subsequently purchased
$0
by rival BMW for $65m
Assets
and many analysts believe
that BMW got the better
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Volkswa
gen
BMW

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Aligning the IP being acquired against the


business being acquired

The intellectual property to be acquired should be considered by reference to what is


actually being used or required to be used in conducting the business to be acquired
and not in a theoretical vacuum.
For example, an extensive portfolio of granted patents may be of no or little value to
a business if none or very few of the products made or processes used in the
business are referrable to those patents, and worse still, if those products or
processes infringe third party rights
The intellectual property to be acquired should be properly categorised by
substantive typeeg granted patent, patent application, registered trade mark,
common law trade mark etc; by its ownership; by third party interests involved in
that intellectual property and by disputes related to that intellectual property.
These factors will provide the foundation to identifying the necessary steps to effect
a proper transfer of title, the obstacles to such transfer that need to be overcome, as
well as the warranties that may be required.
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Aligning the IP being acquired against the


business being acquired

IP your company is acquiring will allow it to benefit from the


transaction in the way it expects. For example, if your company is
buying a business to use its trade mark, the business may be less
valuable if the trade mark registration does not cover the
appropriate classes of goods or services.
Similarly, a business with a number of patents may not be as
valuable as it appears if the key product manufactured by the
business is not covered by those patents, or if the key product
infringes another persons patent. Lapsed patents and designs are
of no value either, so check that IP renewals are up to date.
Search all relevant local and foreign patent, design and trade mark
registers to ensure that IP protection is available in all of the key
markets of the business.
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Means of acquiring IP assets


Mergers &
Acquisitions

Transfer
documents

Supplemental
Closing
Documents

Asset Sale

Purchase
Agreement
Stock Sale

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Share purchases & stock purchases

Share purchases will transfer the entire rights in the


intellectual property by operation of law.
If the acquisition is structured as a stock purchase,
documents transferring the assets generally are not
necessary, instead, documents which transfer the stock
will allow the buyer to indirectly become the owner of
the assets. In the context of intellectual property assets,
very often they will be separately transferred to a
holding company and either licensed back to the
operating company or become the subject of a
subsequent sale to the ultimate purchaser.
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Stock purchases

In the context of a stock purchase acquisition,


ownership of trademarks and other intellectual
property still remains with the acquired
company. Purchase of shares will not affect
distinct property rights in intangible assets or
other intellectual property to be properly
transferred, although a separate agreement is
usually necessary to underscore the parties
intentions.
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Asset Purchase

If the transaction is structured as an asset purchase, the


intellectual property assets will be either specifically
mentioned in the acquisition agreement or become the
subject of a separate bill of sale. However, very often
intellectual property assets are the subject of a separate
agreement in light of the fact that they require recordal
of the new owner in the respective jurisdictions in which
they are validly owned and used. Furthermore, the forms
and requirements for valid transfers differ from country
to country and become a matter of public record

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Sale of assets

If a business is sold as a going concern, the intent to


transfer trademarks and the goodwill associated
therewith is presumed, even though not expressly
provided for. An exception to this concept lies in the
context of transactions between parent corporations and
their wholly-owned subsidiaries. Asset-based purchases
in this context will not automatically include intellectual
property rights, rather, ownership of the intangible
assets will remain with the parent corporation unless the
underlying agreement expressly provides for transfer to
the subsidiary
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Transfer of Domain Names


Domain names

Domain names perform the function of a trademark


if it denotes the source or origin of goods/services.
Ownership of domain names can be transferred
in M&A

The transfer of ownership of a domain name should


consist of no less than three documents; the
Transfer of ownership Acquisition Agreement, a document issued by the
relevant domain name registry attesting to the
transfer (if such change is not done electronically) and
an assignment agreement.

Documents

The latter two documents may be set forth as exhibits to


. the Acquisition Agreement or delivered as a post-closing
obligation.
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Transfer of domain names

The Acquisition Agreement should make certain to address the


intersection to domain names and trademark law.
In addition to stating the intentions of the parties and transferring
the domain name itself, all common law trademark, copyright and
other intellectual property rights related to the domain name should
be should be subject to the transfer as well.
Representations and warranties to the effect that the seller is the
sole owner and that the subject domain name is not subject to any
claims of infringement or other claims or actions should be made,
together with indemnity provisions in favor of the buyer.
The agreement should further prohibit the seller from registering or
using a similar or related domain name

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Transfer of domain names

Specific reference to the domain name registrar


should be made with an affirmative obligation on
both the buyer and seller to execute any
documents it requires.
In most instances, the buyer is responsible for
filing any required documents with the relevant
domain name registry and this should be
explicitly set forth in the Purchase Agreement.
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Tax considerations governing the structure


of the deal

The structuring of an acquisition is frequently governed by tax


considerations. The lead IP lawyer must be alert to the
consequences arising from any particular structure jeopardising
intellectual property rights.
For example, transferring all the intellectual property to a separate
IP holding company while transferring all tangible assets to a
separate operating company, will cause problems if common law
trade marks are involved, because common law trade marks cannot
be validly assigned separately from the goodwill attaching to the
business assets sold.

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Tax considerations

Depending upon the scope of the business activities of


the purchaser, it may choose not to simply obtain record
title to intellectual property assets received in a merger
or acquisition, rather, it may choose to sell its newly
acquired intangible assets to a third party (which it may
or may not own a substantial portion of the shares) and
receive a license to use same.
Very often, this can be achieved in the most tax
efficient manner by placing ownership of the intangible
assets in a holding company which then licenses back
the assets for use by the operating company.
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Tax considerations
Entities which create or
acquire IP assets
has the ability to claim
a tax deduction
for their costs

costs includes patent or


trademark registration fees,
royalties, legal costs
and salaries and
equipment costs
for R&D activities

ss 10A 10B,
80IA, and 80IB
of the IT Act.

IPR were brought under the service


tax law w.e.f. 10th September 2004.

IPR holders are required to get registered


with the appropriate authority under service
tax rule for providing IP Services for
consideration of Royalty.
liable to pay service tax @ 12.24% (12%
service tax + educational cess @ of .24 % of
the service tax) on the gross amount charged
from the receiver
Not available for the tax
year in which amalgamation
/ demerger take place
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These incentives are


thereafter allowed to
the amalgamating
/resulting company,
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Foreign laws impacting on IP

It is not uncommon in present day acquisitions for rights in intellectual property to


arise in various jurisdictionseg foreign registered trade marks, granted patents
etcor in the case of licences, for those to be governed by the laws of jurisdictions
outside India.
In such a context, two factors are particularly important:
first, to have access to a network of good quality intellectual property counsel to
address issues arising from such laws and
second, to begin with the presumption that the laws in those jurisdictions will be
different to Indian law on intellectual property issues fundamental to the acquisition
eg US law may treat the assignment of intellectual property licenses by licensees
differently to Indian law. Adopting such an approach means that issues are more
likely to be dealt with on their merits, and as a consequence, this lessens the risk
profile for the acquirer.
The deal should not be viewed as complete until recordal of the transfer of title has
been effected

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WORLDWIDE RECORDAL OF INTELLECTUAL PROPERTY


RIGHTS.

Necessity for Prompt Recordal : The intellectual

property rights of the acquired company need to be


transferred into the name of the new owner in each
jurisdiction where such rights exist.
First, if a change of ownership is not promptly recorded,
a misconception can arise in the marketplace as to the
identity of the actual owner, leading to a possible loss of
rights where a trademark no longer functions as a true
indication of origin.
Second, the new owner may not be able to prosecute
infringements, file oppositions or attend to renewals or
annuity payments.
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Necessity for Prompt Recordal

Third, fines and/or penalties may be assessed


for late recordal of a transfer.
Fourth, the failure or delay in recording a
transfer of ownership may result in a possible
loss of royalties.
Fifth, license recordals and registered user
entries will no longer be current and may affect
the validity of the use by a licensee and/or
governmental approval for foreign exchange
authorizations for remission of royalties.
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Necessity for Prompt Recordal

Finally, in the event an equitable transfer


occurs without the requisite official change of
record ownership at the relevant patent and
trademark offices throughout the world, the new
owner will encounter enormous difficulties when
confronted with the maintenance, sale,
enforcement, hypothecation, licensing and/or
use of the intellectual property rights.
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THE FINAL WORD

It is anticipated that intellectual property will be the


dominant force in future commercial transactions
comprising tomorrows mergers and acquisitions!

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