It is often critical for one to understand that the transfer of intellectual property rights not a transaction standing alone, but rather an essential aspect of a larger transaction. [20] Intellectual property is often the predominant factor driving mergers and acquisitions; however, the transaction should be construed as the sale of an entire business in which those intangible assets are used. Businesses are generally sold through either the purchase of the stock in a corporation or of assets used by the business being sold. In either scenario, an acquisition agreement and a set of transfer documents will be prepared and negotiated. [21]

Mergers. Mergers are often classified as horizontal, vertical, or conglomerate. A horizontal merger is the combination of two competitors into one entity. A vertical merger involves two companies who previously had a buyer-seller relationship. A conglomerate merger occurs when two companies who were neither competitors, nor engaged in a buyer-seller relationship, combine. The structure of a merger and the methods of merger financing are widely varied and can be all cash, all security, or a combination of both. Variations on merger types include short-form mergers, leveraged buyouts (including a management buyout, as attempted by the management of RJR Nabisco during its thwarted takeover attempt), and freeze-out mergers. [22]

Purchase Agreement. A purchase agreement is prepared for detailing the terms and conditions under which stock will be purchased or assets will be sold. [23] The purpose of the purchase agreement identifies the specific transaction's essential issues, such as the type of stock or assets, purchase price, method of payment, date of closing, and any conditions precedent that one of the parties is expected to meet before the closing date. [24] When intellectual property is involved, the seller will usually be asked, additionally, to make certain representations and warranties about the intangible assets being sold. [25] The need to list the assets and liabilities is greater with an asset purchase than a share purchase because the asset purchaser will typically acquire the assets covered in the transfer agreement, but the share purchaser will transfer all rights in the intellectual property by operation of law. Regardless of the nature of the transaction, asset schedules for intellectual property are key in determining the representations and warranties to be included in the agreement. [26]

Supplemental Closing Documentation. Several other documents, especially involving intellectual property, are generally executed separately from the purchase agreement previously discussed to effect the sale. If the acquisition is structured as a stock purchase, documents transferring the assets are generally not necessary; however, documents that transfer stock will allow the buyer to indirectly become the owner of the assets, or in which the target will become a wholly owned subsidiary. Often, intellectual property assets will be separately transferred to a holding company and then either licensed back to the operating company or become the subject of a subsequent sale to the ultimate purchaser. [27]

If the transaction is structured as an asset purchase, the intellectual property assets will be specifically mentioned in the purchase agreement, become the subject of a separate bill of sale, or both. However, intellectual property assets are often the subject of a separate agreement because they require recordal of the new owner in the respective jurisdictions in which they are validly owned and used. Furthermore, the forms and requirements for valid transfers differ from country to country and become a matter of public record. [28] The parties of the transaction should anticipate these contingencies and contemplate one, or perhaps several, separate agreements about intellectual property assets.

Sale of Assets. If a party gains certain intellectual property rights by acquiring a business vis-à-vis a sale of assets, it is not unusual (although not recommended) for the transfer agreement to not specifically mention trademark or other intellectual property rights. [29] If a business is sold as a going concern, the intent to transfer trademarks and the goodwill associated with this intent may be presumed, even though not expressly provided for. However, it is recommended that such issues be addressed in the supplemental closing documentation. An exception to this concept lies in the context of transactions between parent corporations and their wholly owned subsidiaries. Asset-based purchases in this context will not automatically include intellectual property rights; rather, ownership of the intangible assets will remain with the parent corporation unless the underlying agreement expressly provides for transfer to the subsidiary. [30]

Stock Purchase. In stock purchase acquisitions, ownership of trademarks and other intellectual property remains with the acquired company. Share purchases will not affect distinct property rights in intangible assets or other intellectual property to be properly transferred, although a separate agreement is usually recommended to underscore the parties' intentions. [31]