IP Matters in the Due Diligence Process

A number of issues may arise in a transaction where a new owner acquires a business or assets and can play an important role in the decision-making process. Issues relating to intellectual property matters must be carefully checked before making a decision on a purchase.

Due diligence

When decid­ing to pur­chase an enter­prise, regard­less of whether as a share deal, asset deal or part of enter­prise, most investors ask their lawyers to car­ry out a due dili­gence of the pur­chased tar­get. Due dili­gence is extreme­ly impor­tant, because it may reveal seri­ous defi­cien­cies in the pur­chased tar­get and save the investor mon­ey, as he can apply the out­come of the due dili­gence in the nego­ti­a­tion process.

Although most investors are aware of the neces­si­ty of due dili­gence, the extent of due dili­gence is often sub­ject to dis­pute. Lawyers see all the risks that may be con­nect­ed with an enter­prise and that apply to real estate, cor­po­rate issues or con­tracts. The com­pa­ny often uses diverse trade­marks, logos and designs, is a provider of web­sites or uses know-how from relat­ed com­pa­nies or per­sons.

These issues relate to intel­lec­tu­al prop­er­ty mat­ters and must be care­ful­ly checked before mak­ing a deci­sion on a pur­chase. The dis­cus­sion should not be based only on cur­rent mat­ters, but also on the future plans of the investor.

IP matters in question

As regards trade­marks and logos, the real own­er of pro­tect­ed rights in the Czech and inter­na­tion­al reg­istries always must be ver­i­fied, as well as whether the com­pa­ny has con­clud­ed a licence agree­ment that enti­tles it to use these rights in the Czech Repub­lic. This ver­i­fi­ca­tion is not very time and mon­ey con­sum­ing, as the Czech Office for Pro­tec­tion of Indus­tri­al Prop­er­ty (UPV) oper­ates a reli­able online data­base and the same can be found world­wide. The World Intel­lec­tu­al Prop­er­ty Organ­i­sa­tion (WIPO) pro­vides the Romarin sys­tem and the Office for Har­mon­i­sa­tion on the Inter­nal Mar­ket (OHIM) this year start­ed a new online data­base. More­over, the UPV offers a nation­al and inter­na­tion­al search ser­vice which is well struc­tured and pre­pared.

Web­sites must be ver­i­fied to see whether there is a poten­tial con­flict with exist­ing domains, trade­marks or busi­ness names of third par­ties, which could lead to long-term and expen­sive dis­putes and which could poten­tial­ly endan­ger the oper­a­tion of the web­site. In addi­tion to domains, con­tent is often impor­tant from the point of view of copy­right. A pho­to­graph on a web­site that was tak­en from the inter­net can poten­tial­ly lead to com­pen­sa­tion oblig­a­tions on the part of the com­pa­ny. There­fore, it must be ver­i­fied whether the com­pa­ny con­clud­ed all nec­es­sary licence agree­ments with the authors of the copy­right-relat­ed con­tent, such as web design­ers or the authors of the pho­tographs and designs used.

The use of inven­tions, util­i­ty or indus­tri­al designs is most­ly pro­tect­ed either by relat­ed com­pa­nies or by third par­ties. After the sale of the busi­ness, all rela­tions with for­mer relat­ed com­pa­nies and thus IP rights own­ers will be lost; there­fore, the com­pa­ny needs to ensure that it does not lose the abil­i­ty to oper­ate its busi­ness.

An impor­tant issue relat­ed to all of the above-men­tioned mat­ters is the role of the employ­ees who cre­at­ed the par­tic­u­lar object of IP rights. Although Czech law pro­vides a com­plex reg­u­la­tion that enti­tles employ­ers to car­ry out the right (inven­tion, copy­right etc.), the law enables the employ­ee to specif­i­cal­ly agree on a regime of use of the inven­tion or copy­right-relat­ed con­tent or even ask for high­er remu­ner­a­tion than pro­vid­ed by law. The investor must be aware of these facts before tak­ing over the busi­ness or assets.

Conclusion

There are a num­ber of issues that may arise in a trans­ac­tion where a new own­er acquires a busi­ness or assets in addi­tion to those men­tioned above. These can play an impor­tant role in the deci­sion-mak­ing process.

IP mat­ters some­times may be even more rel­e­vant than the oth­er “stan­dard” issues and under­es­ti­mat­ing these mat­ters can lead to seri­ous con­se­quences. Schön­herr can detect and elim­i­nate them in advance dur­ing the due dili­gence process.

The real owner of protected rights in Czech and international registries always must be verified.