M&As are an integral part of a growing economy and take place both during times of rapid economic growth and when there is turbulence in the economy. M&As pave the way for the expansion and sometimes survival of businesses by enhancing business synergies and maximising returns to key stakeholders. The Indian corporate sector experienced a boom in cross-border M&As after the liberalisation of the Indian economy in 1991. In 2019, there were close to 50,000 M&As,[2] worth US$3.7 trillion[3] in the world economy and of those 1,684 were in India, with a value of US$75.52 billion.[4]

In today’s brand- and innovation-driven world, the intellectual property (IP) of a business is its source identifier and, in most cases, one of its most valuable assets, although an intangible one, primarily on account of the goodwill associated with it. An organisation that has a well-managed IP portfolio can realise a lot of value from it in M&As.

An M&A with a target having a well-curated IP portfolio is the swiftest and the surest way of gaining access to a new product line, competencies, technology, marketplace, customer base or geography. The brand recognition and goodwill associated with the acquired IP assist in gaining a foothold in the new sector and steadily expanding.

Typically, in M&As, the IP transaction is captured in the license or sale agreement. While doing an IP transaction, the applicable laws of the jurisdiction where the IP is registered and that jurisdiction's reciprocal obligations need to be factored in.

Some successful examples of IP-driven M&As in the Indian context in recent times are of Marico Ltd, one of India’s leading fast-moving consumer goods (FMCG) companies. From 1995 to 2018, Marico had successfully acquired various well-known brands, which included SIL from KFL, Hindustan Lever Limited’s Nihar, Zed Lifestyle’s male grooming brand Beardo, Set Wet, Livon and Zatak and certain other personal care brands owned by Reckitt Benckiser.[5]

Additionally, Star India, a unit of 21st Century Fox, acquired the entire broadcast business of MAA Television Network Ltd. MAA TV had four Telugu entertainment channels – MAA Gold, MAA Music, MAA Cinema and MAA General Entertainment. The MAA TV acquisition gave Star access to the 20 billion Indian rupees Telugu television market, India’s second-largest regional TV market in terms of revenue. Before this acquisition, Star did not have a Telugu channel under its portfolio.[6] This strategic decision was taken to strengthen its portfolio and pave its way into a critical market.

In similar vein, Havells India Limited, India’s leading electronics company, acquired Lloyd Consumer Durable Business Division (Lloyd Consumer). The acquisition was executed at an enterprise value of16 billion India rupees on a debt-free, cash-free basis. Havells acquired the entire consumer business infrastructure, which included the absolute, exclusive ownership and rights to the entire intellectual property of Lloyd Consumer, its logo, trademark, goodwill and attendant rights. Through this acquisition, Havells made a foray into the consumer durables industry currently estimated at US$15 billion.[7]

Leading world brands have also been active in India. Hindustan Unilever Ltd (HUL) completed the merger of GlaxoSmithKline Consumer Healthcare Limited (GSKCH) with itself for 317 billion India rupees and additionally paid 30.45 billion Indian rupees to acquire the Horlicks brand for India from GSKCH. Other brands such as Horlicks, Boost and Maltova, all owned by GSKCH, are now a part of HUL’s food and refreshments business falling under the nutrition category and HUL will also distribute GSK’s brands such as Eno, Crocin, Sensodyne, etc. The merger was first announced in December 2018, making it one of the biggest deals in India and giving HUL, already India’s largest packaged consumer goods company, more room to dominate.[8]

In another example of a brand-driven acquisition, Dabur India acquired three Balsara Group companies, which gave it access to seven well-entrenched brands – Promise, Babool and Meswak toothpastes, Odonil air freshener, Odopic utensil cleaner, Sanifresh toilet cleaner and Odomos insect repellent.[9]

IBM acquired Daksh e-Services, the third-largest Indian call centre and back-office service provider, and thus not only gained a core competency but also Daksh’s copyrighted software codes and related IP.[10] This acquisition was more technology-driven.

This brings us to the question of what requires primary focus while traversing an IP-driven M&A. In our experience, the critical pivots of a transaction of this nature are a robust IP due diligence and sound IP valuation.

IP due diligence in M&As

Often the IP analysis and valuation in M&As is merely a proforma component of the due diligence. Many M&A companies do not look at the IP portfolios involved from the point of exploitation or valuation.

This is sometimes true even in the drug industry, where companies live or die on the strength of their patent holdings. According to Cynthia O’Donohue, principal information specialist at global drug company Allergan, businesses do not always look closely enough at the patent issues involved in a merger or acquisition. 'A company may see that the firm it wants to buy has all these wonderful patents', she explains, 'but sometimes they don’t ask when those patents expire. And especially if they’re acquiring a smaller firm, executives have to ask if the company has maintained its patents. If the maintenance fees are not paid, then those patents have elapsed. What’s more, can those patents be invalidated? Are there loopholes or improper claims or prior art errors in them? If you can invalidate them, so can someone else.'[11]

A comprehensive IP due diligence (DD), on the other hand, in an M&A can very well steer the course of the transaction by ascertaining the health of the IP portfolio of the target. It helps identify and mitigate the potential risks associated with the transaction. For this reason, it is advisable to conduct the IP DD at the start of the transaction, so all facts are on the table in the early stage of the transaction.

From the perspective of the company acquiring the IP, a DD with special focus on IP is crucial, since it helps assess its current status, intrinsic value and more importantly status of the IP of the target in all geographies being covered in the M&As. The acquirer gets a complete understanding of the target’s IP and more importantly if the target has the requisite IP for conducting the business that is of interest to the acquirer.

From the seller’s perspective, an IP DD is crucial, since it assists in determining the value of the IP assets involved as part of the transaction and thereby optimises the value of the entire transaction.

A classic example often cited for a DD not conducted comprehensively is that of Volkswagen’s acquisition of the Rolls-Royce Motor Car business from the conglomerate Vickers plc for US$790 million. The deal left out one critical asset, the Rolls-Royce brand. The trademark was controlled by British jet engine maker Rolls-Royce plc, which instead transferred the Rolls-Royce Motor Cars brand to BMW for US$66 million. Volkswagen owned the Rolls-Royce car business and could make and sell the same Rolls-Royce cars from the same manufacturing facility as Rolls-Royce Motor Cars had done, but it could not use the name. Volkswagen reached a settlement with BMW enabling Volkswagen to use the Bentley name, but Volkswagen lost perhaps the most valuable asset of the business: the brand recognition and goodwill associated with the Rolls-Royce name. It was a significant embarrassment for the Volkswagen Group, a coup of sorts for BMW and a significant lesson for the M&A professionals involved.[12]

Before commencing IP DD, our firm encourages multiple interactions with the client to ensure that the team conducting the DD process is well aware of the purpose that the trans­action is seeking to achieve and, more importantly, have a clear understanding of the role of IP in the overall transaction. Based on our experience, an IP due diligence involves ascertaining the following:

  • key IP assets of the target;
  • health of the IP portfolio of the target;
  • monetary value that can be attached to the IP of the target; and
  • the goodwill and brand recognition associated with the IP of the target.

Steps in conducting due diligence

Signing of a non-disclosure agreement

Prior to commencing the IP due diligence process, a mutual non-disclosure agreement should be signed between the acquirer and the target. This is required to protect the information disclosed during the process in case the transaction does not materialise.

A perfect case highlighting the importance of executing a non-disclosure agreement is that of Stac v Microsoft. Microsoft expressed a will to cooperate with Stac on a data-compression program called Stacker, planning to include it in Microsoft’s MS-DOS 6.0, a 1993 update of the operating system used in most personal computers. However, the licence agreement was never concluded and several months later, Microsoft introduced the update of the operating system containing DoubleSpace, a compression program based on the same algorithm as Stacker. Stac sued Microsoft for several infringements including patent infringement, copyright infringement and trade secret violations based on the information received during the due diligence process. Stac managed to win compensatory damages of US$120 million on account of patent infringement and a permanent injunction to stop further infringements. Afterwards Microsoft was forced to 'lobotomise' its operating system and remove DoubleSpace from the software package. This decision is often perceived as a new paradigm of the David and Goliath story, as Stac was able to save itself from annihilation by a considerably more powerful counterparty and enforce its rights in the courtroom.[13]

Identifying the IP assets of the target

The IP assets of the target should be disclosed honestly and transparently by the target to the acquirer. This can be done by the circulation of a comprehensive list detailing all assets by the target in the data room. A questionnaire can also be circulated by the acquirer, detailing the information required. IP as an asset category broadly includes trademarks, copyrights, designs, patents and trade secrets.

Evaluating the IP title and ownership

Evaluation of the IP title determines whether the target has the necessary IP ownership to enhance and facilitate the business of the acquirer. If the target does not have the requisite rights in the IP, which is the crux of the transaction, the question of transferring any right, interest or title in the same to the acquirer does not arise. The evaluation process involves:

  • review and analysis of the registrations and pending applications pertaining to the IP portfolio, with special attention to :
    • registrations: whether they are valid and subsisting or have expired. The registrations that are valid are of prime value. The registrations that have expired are equally important from the point of view of the acquirer, as the same will not be of any value; and
    • pending applications: the stage and the likelihood of the pending applications successfully maturing to registration, as it is the registration that accords statutory rights; and
  • proprietor, as it appears in the records of the Intellectual Property Office. Often the target, unknown to the acquirer, is operating on the IP of another entity. These arrangements are relatively common in the case of group companies, where the IP is in the name of one company and the same is used by the other group companies, often without any formal arrangement regarding the terms of use. Moreover, in home-grown businesses, the IP is generally registered in the name of the promoters. The IP that forms the crux of the transaction, if not in the name of the target, should meticulously and validly be assigned to the target. If the IP rights are in the name of the target, can they be validly transferred further.

All of the above play an important part in the valuation of the IP of the target and determining the monetary value of the transaction. See 'IP valuation' later in the chapter.

Evaluation of the IP rights of the target in different jurisdictions

IP rights are territorial in nature and valid for a limited period. It is therefore crucial to evaluate the IP rights of the target in the jurisdictions where the rights are proposed to be exploited by the acquirer. This involves, among other things, identifying the jurisdictions in which the acquirer intends to exploit the IP rights; ascertaining and evaluating the IP assets of the target in those jurisdictions; and evaluating the IP title and validity in those jurisdictions.

A well-known example of territorial due diligence being ignored in a transaction is that of the Sanofi-Aventis Pharmaceuticals mega-merger, which was locked in patent challenges regarding its three biggest selling drugs, because product clearance and due diligence were not carried out in each geographic market, which resulted in the drugs generating no revenue.[14]

Evaluation of third-party rights in the IP of the target

It is of paramount importance to evaluate the existence of any third-party rights in the IP of the target. If third-party rights exist, their nature and extent need to be examined, as they might well obstruct the rights of the acquirer to exploit the IP. The analysis and review of agreements entered into by the target with third parties, including distribution agreements, packaging agreements, licensing agreements, contractual agreements with third parties and internal employee agreements are generally sufficient to analyse and ascertain the existence of any external rights in the target’s IP.

Evaluating IP infringements and reviewing litigation documents

The evaluation and analysis of the likely results of an existing dispute or a potential dispute are important as they can have a severe impact on the freedom of the acquirer to use the IP post-acquisition. In the trademark sense, if there is a dispute pending with respect to the brand that is the mainstay of the transaction, and it is likely that the use of the brand might be compromised or injuncted as a result of the litigation, in this scenario it would not make sense to acquire the disputed brand, as the acquirer’s rights to the brand will be not be unfettered. If the acquirer decides to proceed with the acquisition, despite the pending litigation, the time and costs likely to be entailed to contest the litigation after the acquisition should be factored in, as the same should not outweigh the benefits of the acquisition; if they do, then it makes no sense to acquire the brand.

A classic example of these aspects is when Viacom had launched a US$1 billion action against Google following its US$1.6 billion purchase of YouTube, on the basis that YouTube had infringed its rights. Google’s acquisition process had not taken into account YouTube’s business conflicts with other parties.[15]

Final due diligence report

Once all the aspects of the due diligence are covered, the final due diligence report is prepared documenting the results. The final due diligence report, as a general practice, sets out the potential risks, liabilities and benefits associated with the transaction; as well as strategies to mitigate those risks and liabilities and whether it would make business sense to go ahead with the acquisition.

IP valuation

After completion of the due diligence, the parties have a clear idea for undertaking the tricky task of IP valuation. The value of IP is the monetary value of the IP that is expected to be received from the licence or transfer of the IP.

IP valuation presents a dilemma, as there is no standardised method for doing so. In particular, challenges arise when the IP valuation has to be done across jurisdictions, as valuation methods will vary depending upon the jurisdiction involved (ie, tax and other regulations, government policies and the market trends applicable). There are three methods of IP valuation:

  • cost method, which is usually chosen when the IP is at a nascent stage and has not been in extensive and lengthy use. In such cases the cost of creating the IP is taken into account, often known as the historic cost and how much it would cost to recreate it at the current rates;
  • market approach, which is based on market insights, comparison of values of similar transactions and industry benchmarking; and
  • income Method, also known as the economic benefits method, which looks at the historic revenues generated by the IP and calculates the future revenues the IP will generate and the cost of generating that income. This method uses the IP future prospects as the basis of the valuation.

These methods can be concurrently used to arrive at a final IP valuation. To value the IP, the results of the DD are relied upon as they set out in detail the status of the IP portfolio of the target, as discussed above.

Smith and Parr have estimated the percentage of the value created by intangible assets in several renowned companies such as Johnson & Johnson (87.9 per cent), Procter & Gamble (88.5 per cent), Merck (93.5 per cent), Microsoft (98.7 per cent) and Yahoo! (98.9 per cent). This sample proves that the prevalence of intangible assets is imminent across the industries, not being limited to pharmaceutical, software or internet companies. Moreover, the same result of IP dominance could be expected in the case of innovative startups whose core value often reaches 100 per cent in intangibles. Whether being an experienced player in the market or a venture capitalist, valuation of intangible assets appears to be strategic dilemma.[16]

IP warranties and indemnities

Before the closure of the transaction, it is necessary that the relevant IP warranties and indemnities be executed by the parties. The IP warranties in a transaction should include warranties stating explicitly that the target is the lawful proprietor of the IP being assigned or transferred, the said rights are sufficient to conduct the proposed business utilising the said rights and the IP rights being assigned or transferred do not infringe any third-party IP rights and the rights to use the same are unfettered.

An IP indemnification is taken from the target (assignor) to indemnify the acquirer (assignee) against any third-party infringement claims with respect to the IP rights assigned. The indemnification can be limited to a certain period following the transaction closing date and does not need to be in perpetuity.

It is crucial that the IP warranties and guarantees with respect to the transaction be as clear and specific as possible in order to avoid ambiguity and post-transaction litigation.

Transfer of IP in the name of the acquirer post-M&A

The intellectual property rights of the target company must be transferred into the name of the buyer in every jurisdiction where such rights exist. Timely recording in the appropriate jurisdictions of the change of ownership is essential for protecting the ongoing validity of the IP and enforcing the IP rights by the acquirer.

Moreover, if the recordal of the change is not done in a timely manner, it may result in the following:

  • lapse of any deadline of renewals or deadline-specific actions that can be carried out only by the proprietor on record;
  • enforcement of an IP right that can be done only at the instance of the proprietor can be lost, in the absence of timely recordal. For example, in the case of an infringement of the acquired IP, if the acquirer is not on record as the proprietor of the IP or the relevant documents for recordal of the IP have not been filed before the concerned Intellectual Property Office, then enforcing the same would be extremely cumbersome for the acquirer;
  • adversely affect any transaction that the acquirer may want to enter with respect to the acquired IP with a third party, since the acquirer will not be on record as the proprietor of the same; and
  • valuable IP rights could be lost owing to the lapse in recordal of the same by the acquirer post-acquisition.

The recordal of the IP rights in the name of the acquirer is usually done at the acquirer's expense. This should be specified in the agreement.


As the world moves towards brand-centric and innovation-driven economies, the value and importance of IP assets keeps increasing in leaps and bounds day by day.

For IP owners looking to realise the monetary value for their intangible assets, the range is greater than ever before. This in turn makes it essential to protect IP, especially when it comes to M&As where IP assets are often referred to as the ultimate M&A dealbreaker. The power of IP to influence or even determine the outcome of an M&A is only going to grow in the future. Thus the IP of a company should be well protected and be primed especially where an M&A is anticipated and is part of the growth plan of the company.

Organisations that manage their IP portfolios efficiently will ultimately be the winners, as a majority of M&As in times to come will take place only to acquire the IP of the target, leading to rapid growth on this basis.