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Legal Focus
JULY 2013
the Intellectual Property Considerations in Spin-offs
A spin-off’s success or failure often depends on the intellectual property (IP) rights that it has and in understanding the scope and the limitation of those rights. Looking further into these issues, Lawyer Monthly speaks to Dr. Sean Jauss from Mewburn Ellis LLP in Bristol. Sean is a specialist IP lawyer with over 10 years’ experience advising clients on the exploitation and commercialisation of all types of IP. He has been ranked in Chambers & Partners and The Legal 500 since 2008 as an “an expert on the non-contentious side”. He principally advises clients in the biotechnology, pharmaceuticals, nano-materials and engineering sectors.
How does the management of a spin-off review its IP estate?
In short, you need to do some technical and legal due diligence on the IP. This is true even if management is familiar with the IP. The objective of due diligence is to understand:
• what IP rights are being assigned or licensed to the spin-off;
• the scope of protection afforded by those IP rights;
• the technical merits of the IP, which basically means whether the IP is fit for purpose by covering the spin-off’s products or services;
• any risks associated with the IP, principally (but not solely) infringement risks, and;
• any encumbrances, such as licenses or security interests, that attach to the IP.
How does the spin off actually get hold of the IP?
Rights to the IP can be provided either by the transfer of the property to the spin-off (an assignment) or by a licence. An assignment is often more attractive to investors. When taking an assignment it is important to understand whether the legal title is encumbered by the rights of other parties, for example licenses or security interests. Either may affect the freedom to operate of the spin-off. In the case of registered rights, such as patents or trademarks,
it is also essential to record the change of ownership of the IP. Failure to do so may adversely impact the ability to prosecute applications and in enforcing the IP rights against third parties.
A license, because it is a contract, is a less secure proposition. The property rights remain with the parent company. Getting the cost benefit balance of the contract right is important to the future success of the spin-off. A weak or unclear position will also be unattractive to investors.
Are the costs of IP an issue for spin-offs?
Absolutely! All registered IP must be renewed from time to time. Applications for IP rights, such as patents or trademarks, must be prosecuted. These costs will be a liability on the company’s balance sheet.
IP is only useful to the company
if it is an asset rather than a liability – e.g. by attracting investors, creating competitive advantages or providing market entry hurdles. If the IP’s cost is not offset by some valuable contribution to the business, then the spin-off will need to make hard-nosed decisions about whether to maintain the IP.
Another key consideration is whether the business has the wherewithal both in treasure and intention to enforce the IP rights which it has. It if has neither, the IP is a liability rather than an asset.
once the spin off has successfully set up what happens next with the IP estate?
As part of the business plan management must consider how the IP will be commercialised. How will the IP be used to generate value for the company? Will it support products and services directly or will it be part of a product development or licensing arrangements? The answers to these questions, and many others, will determine the strategy for maintaining and expanding the IP estate. Management that has a good grasp of the strategic planning of its IP estate will be in a more advantageous position. LM
Contact: dr Sean Jauss
Solicitor & Head of Legal team Mewburn Ellis LLP 22-24 Queen Square Bristol BS1 4nd
tel: +44 (0)117 945 1234 Fax: +44 (0)117 926 5692 e-mail: sean.jauss@mewburn.com