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Legal Focus

JUNE 2012

Intellectual Property Due Diligence new Zealand

Due diligence is always an essential part of any business venture, but none more so perhaps than when it comes to Intellectual Property issues. To find out more, Lawyer Monthly speaks to Christopher Young who leads the IP practice at Minter Ellison Rudd Watts. Minter Ellison Rudd Watts is one of the few large commercial law firms in New Zealand with a dedicated IP practice and has a leading team.

What are the common problems to arise from companies failing to carry out extensive due diligence in terms of IP?

At this point in time most companies have intellectual property rights of importance to their businesses so the risk is that potential issues (which may, for example, impact on the value of the business, whether the company is able to transfer all intellectual property used in the business to a purchaser, and the ability of a purchaser to carry on the business going forward) will not be identified.

Key issues include:

• whether any assessment has been made of whether the company is free to operate its business without infringing third party intellectual property rights;

• whether the business owns the intellectual property the business intended to own, or has the right to use intellectual property used in the business (for example software and IT systems developed by third party contractors);

• in group company situations identifying which group company owns relevant IP rights, and whether any intermediary transfers are needed, or ongoing licensing if any IP of significance will be retained by the vendor group;

• whether sufficient IP rights are owned by the business to protect its business; and

• whether the business assets/products are protected by IP rights outside New Zealand (often the acquirer will want to expand distribution to other markets post acquisition).

Given the potentially wide scope of IP used in or owned by a business, it is important that IP due diligence is focused on key assets, the main revenue drivers, and IP rights that give a competitive advantage.

What are the key legal issues foreign companies need to consider regarding IP due diligence when looking towards your country?

The smaller scale and cost sensitivity of many New Zealand businesses means that many New

Zealand businesses have not fully cleared brands, products, processes or inventions or taken appropriate steps to secure ownership of IP rights and protect IP to the extent that would be typical of IP focused large businesses in, for example, the USA or Europe.

Typically we find it often necessary following due diligence for overseas companies acquiring local businesses to take steps to reduce risks identified in due diligence and obtain more security for the IP rights, including intermediary assignments/ transfers and putting in place additional registered coverage. Often this will become a condition to final completion of the transaction.

In New Zealand, intellectual

property rights developed by an employee in the normal course of employment will generally be owned by the employer

Generally ownership of unregistered IP (including copyright, brands and know how) is an area that can lead to issues if not investigated including in the context of which group company owns the rights. Ownership of intellectual property created by third parties (e.g. software systems developed by contractors, logos developed by advertising agencies) can lead to issues if ownership of intellectual property has not been specifically covered correctly by a written agreement.

In New Zealand, intellectual property rights developed by an employee in the normal course of employment will generally be owned by the employer, subject to any contract to the contrary and factual issues which may affect the position (for example, intellectual property developed outside normal hours, work that copies third party intellectual property, work that includes the employees’ personal intellectual property and work outside of the normal job description of an employee may not be owned by an employer).

Independent third party contractors will though generally own intellectual property they develop

contact details

if it is not expressly covered in the contract. Unusually, in New Zealand there is an exception though for a certain group of copyright works (for example computer programs, drawings, diagrams, films, sound recordings) where if these works are commissioned (and paid for or agreed to be paid for), the commissioner will own the copyright rather than the developer/ designer/contractor, but this exception relates only to copyright for specific types of works and not to other copyright works or other intellectual property rights, for example know-how, inventions and written material. So, using software as an example, if commissioned the copyright in the software code will be owned by the commissioner under this exception but not the manuals, which are literary works. LM

christopher Young Lumley centre 88 Shortland St auckland new Zealand

tel: +64 9 353 9910 Mobile: +64 21 342 837 Fax: +64 9 353 9701

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