In this six-part series, Anders Isaksson explores some of the critical factors and motivators for why companies, small or large, should obtain intellectual property. The aim is to help you understand when and how you can create value from IP, especially when considering a company’s long and short-term goals.
In the previous article in this series, we explored how at any stage in the corporate cycle, it is likely that merger or collaboration opportunities will arise. In both instances, intellectual property nicely puts into place what is known before engaging in such activities and can help to provide concrete outcomes from the merger or collaboration.
This part considers spin-offs, the internal division of the business unit or product or whatever the split is going to be and how having dedicated intellectual property (designs, patents or trademarks) for the spin-off will make it easier to perform several functions later down the line like valuations and certain commercial matters.
There are several forms of spin-offs, but an encompassing definition includes: when a company creates a new independent company by selling or distributing new shares of its existing business.
The first step in a spin-off is to do thorough due diligence and identify any benefits and drawbacks for creating the spin-off. Some benefits could be for handling risks within a part of a company or more commonly better market potential for a part of the company. The due diligence will then identify at least both the potential market and all existing intellectual property.
These two components are the most important ones to consider when dividing the intellectual property and deciding on which IP will stay with the parent company and which IP will be transferred to the spin-off. The due diligence will also then highlight where there is a possibility to strengthen the IP, both for the parent company as well as for the spin-off.
Another benefit with already having intellectual property from the beginning in the spin-off is the ability to place a value on all the intellectual property rights and this should be reflected in the transfer documents. Thus, from the start the spin-off will have assets in the company which can be used if needed for other purposes like funding. It also helps the parent to put a price on what is being transferred for various commercial reasons and the spin-off understands what assets it is receiving.
In some cases, intellectual property may be shared by the parent company and the spin-off. In such cases it is important to have licencing agreements in place and thoroughly consider which entity, the parent company or the spin-off that should own the intellectual property. Any transfer of rights will trigger an update to the register before IP offices around the world to capture the new owner (the spin-off).
While everything should have been captured during the above steps it is also important to have legal agreements in place for any claims, potential claims, mediation or arbitration as an alternative to litigation (depending on the relationship between the two parties) and so on.
Where the spin-off will have a new corporate identity from the parent company, involve intellectual property counsel early to make sure that the IP is handled in a good way for both parties during the creation of a spin-off. But also, afterwards so that a suitable new brand, patents or other intellectual property is adopted together with the spin-off’s corporate structure to support the new business.