Another important business process which intellectual assets play a key role in the decision is that of a merger, acquisition, joint venture, or alliance. When considering a merger, acquisition, joint venture, or alliance, a company must examine relevant intellectual assets in the context of that company’s business objectives. Identifying proprietary assets, assessing their value in view of corporate objectives, and implementing a strategy to transfer and exploit the assets are essential steps in a successful transaction. A structured approach to such an analysis assures an accurate assessment of the intellectual assets value.
Merger, acquisition, joint venture or alliance participants seek to obtain value by acquiring assets at the lowest possible price and avoiding liability that may result from infringing others rights. For those participants that possess intellectual assets they seek to obtain the highest possible price for these assets and to avoid representations to the other party which may result in liability at a later date.
Each party recognizes that not all intellectual assets are created equal. They must evaluate the assets worth in their marketplace. To a large extent an intellectual asset’s value is a function of the company’s plans for using the asset in the future. Thus each party seeks to identify each intellectual property asset, examine its usefulness, and determinants value both in absolute terms and also relative to the other intellectual property assets of the proposed new business entity. Each entity must also convince themselves of the manufacture, use, advertising or sale of any asset does not infringe a third party’s intellectual rights.
Any party with a deliberate, long-term program designed to protect rights and intellectual assets is better able to convince the other party of that intellectual property’s value. When contributing intellectual assets to a combined entity, that party should be careful to avoid representing that the assets are suited to the other party’s or future venture’s particular purposes. Parties seek to avoid blanket warranties concerning the validity of the assets, preferring to limit themselves instead to warranting only that the asset is free of liens and encumbrances and can be freely transferred. Typically a party will warrant only that he is not knowingly engaged in any activity that could render the asset unenforceable.
In this part of the overall strategy for a transaction, each party should identify the intellectual assets involved, conduct appropriate clearance searches, and negotiate the asset’s value. All parties should recognize that the transaction risk lies disproportionally with the entity acquiring the intellectual assets. As a result, the acquiring entity must exercise due diligence in evaluating the assets.
Generally the merged entity, the acquirer, joint venture or alliance management assumes a burden for determining the intellectual property value. The sequence of steps in the level of effort expended will depend on the particulars of the transaction, the time available to conduct the analysis, the merged entity, acquirer, joint venture or alliance management’s knowledge of the contributor’s operations, and general industry knowledge. The following 10 steps offer comprehensive approach to evaluating a transaction’s intellectual assets.