Simplifying Your Life & Law | Legal Drafting services
Introduction
The process of evaluating the risks and situations through which a company can pass is a complicated one. It is really important to take due diligence before taking every step in a company and any of its procedures. The process of merger and acquisition (M&A) involves the merging of two companies together and work as one. It involves the merging of the asset, liabilities, and all the other aspects on which the companies agree. The acquisition is about acquiring a company. This is done so that they can work together as a single unit. It is very important for the people who are associated with the company to know the conditions of the other company so that the investors and other people don’t have to face any losses in future instances.
One of the major aspects of this is due diligence in respect of intellectual property. When two or more companies are merged, the IP of both companies is involved. It covers the criteria of copyright trademark patents etc. It also includes the value of the intellectual property assets of a company so that there is transparency between both the companies before merger and acquisition. The technologies are involved in the workings of a company and their security is a must. IP due diligence covers them and helps to identify the problems.
Perspectives of IP Due Diligence
Ip due diligence is important to make sure that the economy will not get affected by the merger and acquisition. It does not lead to infringement of privacy. However, it is necessary to take such steps to avoid future losses. acquiring or merging with a firm includes merging the assets and all the other essentials. In this situation, the valuation of everything is paramount. The process of IP due diligence is quite lengthy and therefore, many companies tend to avoid it. However, this is not acceptable and negatively affects the merger.
In every process related to corporate, the signing of an agreement plays a vital role and the agreement must not be disclosed to a third party. This is essential and an example of this is the case of Stac v Microsoft, in this case, Microsoft was held guilty of infringing patent rights by a federal court. it is important to have an agreement on IP rights and usage so that it does not lead to any kind of misunderstanding.
Every company has its IP assets and its valuation is also a must. While the M&A process, IP assets are also merged. It affects both the companies and helps in attracting investors, financing in a secured way, and also settle disputes. The valuation is based on several aspects which include the market, income, and cost of both companies. This helps in preparing a proper valuation.
There might be some cases where both companies would function in different jurisdictions. In such instances, it becomes important to take decisions on the IP rights of the companies. The non-consideration of this fact would lead to non-generating revenue. Also, IP rights are important for third parties associated with both companies.
The rights that are transferred to while M&A are necessary to exist. Before the evaluation, it is also superior to have a check on the existence. After this, the capacity and validity of all IP rights and assets are to be evaluated so that legal rights, restrictions, and risks can be prioritized. False valuation may lead to conflicts in interests of both companies.
After all the evaluations, procedures, implementations, it is important to make a due diligence report. It is tough to remember all the aspects at once and keeping all of them separately may lead to inefficacy in the functioning of the companies. Therefore, the formation of a due diligence report is important. This report also plays the role of shreds of evidence at the times of conflicts concerning IP.
Importance of IP due diligence in M&A
The merging of companies takes a lot of lengthy procedures to be completed before the commencement of their work as a single company. Every process is vital to circumvent future complications. IP is taking over one of the important facets of M&A. The major importance of IP due diligence is the following. –
- The valuation of IP assets protects both companies from frauds and bearing losses.
- The transactions that take place between the companies are secured and have authenticity if the IP rights are secured and checked.
- It tends to create an atmosphere of trust between the companies which helps in conducting business transactions smoothly.
- The rights of the companies are associated with the rights of third parties too. If the due diligence of IP is taken, the parties’ rights also remain well reserved.
- The technological licenses also remain protected and can be updated according to the usage and compatibility of the companies.
- Cost and profit related issues are also resolved which helps in maintaining healthy market relations.
- It helps in solving the tax-related issues that companies have so that they don’t become a hurdle afterwards.
- Clearance of debts of the companies separately.
- The process of IP due diligence is prime and works as the process of throwing the garbage out of the companies and replacing them with new and essential assets and technologies. The supremacy of IP due diligence is not limited and leads to the overall smoothness of the companies as one.
Risks involved in IP due diligence
The phrase that everything has its pros and cons is true in IP due diligence too. The importance is accompanied by the risks too. When the process of due diligence is conducted, the risks also increase. The process includes the shift of many aspects of the companies from their original ones to fresh ones. This shakes the entire working environment of the company and can have major after-effects. Such effects can hamper the companies as separate and as a newly formed single entity.
One of the main risks is related to IP litigation. The IP laws in the case of different jurisdictions lead to conflicts that would further lead to complications in the merger of companies. The people associated with the companies might also not go along with each other’s decisions in such cases. The self-evaluation plays a supreme role here.
The deal between the companies may be paused during the procedure and may lead to negotiation. The procedure of the negotiation might take time. The non-compliance of the companies with the negotiation might lead to other negotiations or further processes. This will affect beneficial terms.
The involvement of the companies in these processes would lead to the loss of both companies. This will also lead the way to lower down the market values of the companies which will involve the risks of cancellation of the deals, losing the investors, etc. The possibility of a financial crisis will arise that will keep the company underrated in future circumstances. Such risks can be avoided by taking all the necessary steps at the early stages of M&A and making the points clear for both companies at the right time.
Conclusion
The process of M&A is complicated as well as risky. This might either lead to profits for the companies or unavoidable losses. both the conditions depend on the steps taken by the companies. The procedure of IP due diligence has a major impact on the whole working of the companies as a single entity because the major legal rights are associated with it. identification of the problems is vital at this stage.
Process, aspects, risks, and every other perspective related to IP due diligence has its importance. The final evaluation is for future usage by the companies so that an analysis can be done at times of need. IP due diligence when properly done makes it clear whether the M&A between the companies will be fruitful for them or not which saves the economy of the companies as well as the third parties associated with them.
