Updated July 24, 2020: 

How to Buy Intellectual Property

Intellectual property may either be owned by a person or by a company. Although most companies choose to retain their own creations, some own IP with the intention of selling it within the scope of the law. There are instances when a person may want to sell the IP instead of keeping it.

There are many forms of intellectual property, including:

  • Music labels
  • Recordings
  • Software
  • Movies
  • Chips
  • Artwork
  • Inventions
  • Discoveries

It is clear to see that there are many different areas of IP available.

You may be wondering when it is beneficial to sell intellectual property. Not all people have the means to implement something they have created. Instead, they have to turn to someone else to help. For instance, if a person invents a tool that is unique but does not have the money to produce it, they would have to turn to someone who does have the means to get it into production. The inventor of the tool would be able to see the materialization of their tool by locating a company that is willing and able to take the idea to market. The company could pay a sum of money for the idea to obtain legal rights through a patent sought in the name of the company.

There are times when a person has written a book or song and is not able to publish the work themselves. This is a case when the owner of the IP can sell it to someone else. The same can be said for photographs.

IP Issues Arising When Buying or Selling a Business

The valuation of intangible objects like IP in accordance with the value of the organization has been on the rise for years. New surveys indicate that for many organizations, the value of their IP along with other intangible items has begun to exceed the value of their hard assets such as plants, machines, and buildings.

From the view of a business owner who plans on selling a business, there are some key issues including the following:

  • Identification of intellectual property: In many cases, IP is commonly overlooked and unknown to vendors as it is not recognized as intellectual property. This often includes the confidential processes and methods used by the employees. Other times, licensed intellectual property is overlooked because it isn’t owned by the business, but the license is an intellectual property asset.
  • Registration of an unregistered intellectual property: In the cases where intellectual property is identified and is able to be registered, such as a certain color scheme used by a business or the name of a product, the intellectual property needs to be registered.
  • Recording intellectual property: IP needs to be recorded in a schedule that is ready to access and to map against other products and services provided by the business.
  • Valuing intellectual property: There are different ways to approach valuing intellectual property. Some are more appropriate than others. In general, the proprietor of the intellectual property would like to value the IP to the income that it generates.

The identification and the valuation of IP used in a company before its sale has many positive effects. First, it lessens the chance that any issues will be discovered while doing the due diligence that could alter the sale. Second, there is a sense of comfort that is derived by the buyer that sees that the processes have been written down and deemed confidential, which reduces the risk that comes when employees leave the business. Third, through the proper valuation of IP, the sale price can be better justified.

Ownership of and Right to Use the IP

One of the first issues, and often the most important component when reviewing the IP rights of a target company, is determining that it owns or has a license for any key IP and technology it uses.

This will involve the review of the company’s registered IP ownership records and looking at any intellectual property or tech-related agreements to make sure that the company has the right to use the IP henceforth. It is also important to find any broadly represented ownership or warranties related to ownership of the IP in the purchase and sales agreement.

Making sure that the company is legally allowed to use the IP and any technology is one aspect of dealing with IP when you purchase a business.

You also need to ensure the company has not given the rights away and still has the IP and technology before closing.

If you need help with buying intellectual property, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.