The quality of IP record management will tend to come front of centre during the transfer of a portfolio. As part of our series setting out best practice for the transfer of IP ownership, Novagraaf’s Tom Farrand looks at potential issue and problems to solve during portfolio take-overs.
As we have written previously, the extent to which companies are diligent in the maintenance of IP and IP records can vary considerably. If a company has followed best practice, either as a matter of ongoing routine or in preparation for an asset sale, then this inevitably makes the portfolio transfer and IP recordal process easier to execute. If rights are not kept up-to-date then they are at risk in terms of validity and/or enforceability.
Testing the waterIs the schedule of rights listed on the final transfer assignment reflected by the records held by the relevant patent and trademark offices? Are the records held in the correct starting entity name? Look out for even minor discrepancies, e.g. between plc/ltd status. Errors here create delay, or worse, may invalidate the registered rights.
Updating ownership As a next step, an agent in every country should be contacted – the company acquiring the portfolio should use its own agents (rather than the agents of record) – to check what the relevant IP office requires or would accept in order to update the records to the new owners.
Using your own agents ensures that there is no potential conflict of interest. Using local agents is usually essential so as to have knowledge of local law and rules, and because local rules may require a representative to be locally resident and/or registered, and there may also be local language requirements (Find out more about the IP recordal process here).
Managing the paperwork The IP recordal process requires two signatories (the selling and buying companies), and the representatives must both be available and empowered to fulfil the requirements. Do the representatives have the right to sign on behalf of their company? What happens if they leave after the sale?
It is often helpful to have the parties sign a general power/authorisation empowering an attorney to complete all documents needed to confirm and record the assignment. This means that documentary requirements that arise after completion of a sale/transfer may be met without the need to track down authorised signatories from either party.
Erroneous record of title may jeopardise the validity of IP. In this regard, it’s important to note too that, in most jurisdictions, there is not a thorough examination of the documents filed in support of an application to change ownership. In some cases, there is no examination at all. This means that the first and only time that the supporting documents will be scrutinised is during litigation should it arise (at which point lawyers on both sides will examine the documents and their validity). A primary defence by a third-party may be that the trademark registration is not, in fact, owned by the claimant. If the ownership documents are faulty, it will come out just when the new owner it needs it least. For that reason, it’s important to ensure that every step of the process in every jurisdiction is taken correctly (if in doubt, involve a specialist).
For patents, it may be the inventor as well as the owner who needs to complete documents. Inventors who are not or no longer employed by the owner may be difficult to find, particularly post-completion. This is another reason why identification of issues as early as possible in the transaction is important to facilitate the smooth running of post-completion steps. (Find out more about best practice advice and procedures for smoothing the transition from sales agreement to completion).
Meeting deadlines Deadlines are usually critical in the prosecution and maintenance of IP rights, particularly in relation to patents, which require payment of annual or regular maintaining fees. If not met, the right can be lost (or damaged). As responsibility changes from one owner to the next, and from one representative to another, the risk of error or omission increases markedly.
It is critical, therefore, to ensure an effective transition through good cooperation and communication between the parties involved. It is also important that any foreign representatives are notified promptly. The sharing of a forthcoming diary list is extremely helpful.
A checklist of common pitfalls Outlined below are common portfolio management issues that surface when chain of title and IP recordal work are not properly managed or promptly updated:
- Difficulty tracking and identifying which IP assets have been updated and which have not;
- Erroneous record of title may jeopardise the validity of IP in some jurisdictions;
- Recently filed applications can be held up by IP registered in the old name;
- Original evidentiary documents could be irretrievably lost;
- Prior owners may go out of business, cease to exist, move or change names;
- Prior owners may be unwilling to cooperate after the passage of too much time, especially if personnel have changed since the original transaction;
- Default in applications and registered IP may occur if official documents are delivered to the old owners and answer deadlines are missed, potentially causing the rights to be lost;
- Inability to file suit against infringers if the IP is in the wrong name;
- Inability to get a temporary restraining order in infringement matters;
- For trademarks, third parties may be more likely to adopt conflicting marks if they think the owner is defunct; and
- May make divestiture of assets more difficult or may get lower offer if ownership appears split or the chain of title is not up to date.
This is not an exhaustive list, but it gives some idea of the risks that can occur if the IP recordal process is not given prompt attention or resourced appropriately. The transfer of IP ownership due on the acquisition of a brand or business is inevitably a time-consuming and costly exercise, and it’s important to be alive to the potential risks and pitfalls of a failure to record changes in a timely manner.