Ladas & Parry - Transfers of Intellectual Property - WORLDWIDE RECORDAL OF INTELLECTUAL PROPERTY RIGHTS

IP As Property / IP Rights Transfers / Transfers of Intellectual Property

WORLDWIDE RECORDAL OF INTELLECTUAL PROPERTY RIGHTS

With the exception of all-stock deals or relatively similar stock transactions, the assets, including the intellectual property rights of the acquired company, need to be transferred into the name of the new owner in each jurisdiction where such rights exist. Timely recordal of a change of ownership is critical to protect the ongoing validity and enforcement of intellectual property rights for several reasons, including:

• If a change of ownership is not promptly recorded, a misconception can arise in the marketplace as to the identity of the actual owner, leading to a possible loss of rights where a trademark no longer functions as a true indication of origin. This is particularly true in the case of well-known trademarks, or in the case of other marks which are extensively used in their particular jurisdiction.

• The new owner may not be able to prosecute infringements, file oppositions, or attend to renewals or annuity payments. For example, enforcement of a patent can only be carried out under the authority of the owner of record or its exclusive licensee. If prompt injunctive relief is required, an undesired delay will result from a necessity to record the transfer of rights. Furthermore, the right of the patent owner to obtain damages for acts of infringement that occurred before the transfer documents were recorded may be lost in certain jurisdictions.

• Fines and/or penalties may be assessed for late recordal of a transfer. In certain jurisdictions, there are time limits after which it may be too late to effect properrecordal of an assignment.

• The failure or delay in recording a transfer of ownership may result in a possible loss of royalties. For example, if a license is to be given under a patent, the licensor must be the owner of record. Therefore, a delay in recording the transfer can delay the date when the license agreement becomes effective; this, in turn, can delay manufacturing and/or sales. The resulting loss of royalties may not be recoverable. In a number of countries, a license agreement must be approved by government authorities and, in the license agreement submitted for such approval, the record owner should appear as the licensor. Delay in recording thus delays approval, with consequential loss of royalties.

• License recordals and registered user entries will no longer be current and may affect the validity of the use by a licensee and/or governmental approval for foreign exchange authorizations for remission of royalties.

• In the event an "equitable transfer" occurs without the requisite official change of "record ownership" at the relevant patent and trademark offices throughout the world, the new owner will encounter enormous difficulties when confronted with the maintenance, sale, enforcement, hypothecation, licensing and/or use of the intellectual property rights. For example, proof of use (where required for maintenance of existing trademark registrations) may not be accepted when used by the current owner unless that party is now reflected as the "record owner."

Separate Documents for Each Jurisdiction Are Required. In order to reflect the new owner of the patent, trademark, or copyright as the "owner of record," it will be necessary in most jurisdictions for counsel to prepare separate assignment documents for each jurisdiction in which such rights exist. In some jurisdictions, a certified copy of a "general" worldwide assignment may be acceptable. Intellectual property statutes exist in most countries of the world and provide a mechanism for the recordal of a change of ownership at a central registry. The form and substance of these documents vary from jurisdiction to jurisdiction, which underscores the advisability for the preparation of separate document for each jurisdiction. Such documents must be filed and recorded at the respective local registry. Furthermore, several multicountry registration systems, such as the Patent Cooperation Treaty or the Madrid Agreement, have special requirements with which counsel must be familiar in order to properly record a transfer of title. In this respect, it is recommended that the acquiring company engage counsel experienced in the worldwide transfer of intellectual property rights and familiar with preparation of documents necessary for each jurisdiction.

Furthermore, several issues can arise with respect to the filing and recordal of the assignment documents at the respective local registry. In particular, stamp, value added or ad valorem taxes may be assessed on the transfer, official actions may issue encompassing a potentially broad range of issues (e.g., the existence of associated trademarks) and advertising and publication requirements may need to be satisfied. Furthermore, these local requirements underscore the need for separate transfer documents to be prepared, executed and recorded in each jurisdiction in the native language. Similarly, confidential information, which the buyer does not wish to disclose, may be omitted as each transfer document can be prepared simply to satisfy the local requirements for transfer of the national intellectual property rights exclusively. Experienced intellectual property counsel familiar with the worldwide recordal of ownership transfers should bring these issues to the acquiring company's attention prior to the preparation of the required assignment documents for each jurisdiction.

Costs. Where a significant number of intellectual property rights that exist in multiple jurisdictions are the subject of a merger or acquisition, the costs of simply preparing and recording the necessary documents can be substantial. Official fees are assessed by the number of trademarks or patents included in the transfer. The burden of absorbing the costs of effecting recordal of the assignment or merger frequently is borne by the acquirer. However, this is not always the case. In some cases, the costs are factored into the purchase price and in other cases these costs are shared by the parties. Accordingly, it is advisable that the issue of costs are discussed by the parties and treated in the Purchase or Acquisition Agreement entered into during the course of an M&A transaction.

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