Key Takeaways

  • An intellectual property asset sale transfers ownership of key intangible assets like patents, trademarks, copyrights, or trade secrets.
  • Buyers must perform careful IP due diligence to verify ownership, scope, and potential encumbrances before purchase.
  • The agreement should clearly define which IP assets are included or excluded, and include warranties, indemnities, and transition provisions.
  • Valuation of IP assets is complex and may depend on revenue generation, brand recognition, or future development potential.
  • Both parties should secure proper registration transfers with the USPTO or other relevant agencies to complete ownership change.

An intellectual property asset purchase agreement identifies a seller’s intellectual property rights, and the assets and liabilities attached to them, that a buyer agrees to acquire and assume when a buyer takes ownership of the seller’s discrete business, such as a product line, subsidiary, or unincorporated division. The agreement often details certain intellectual property assets and services, including IT services, that the buyer will share with the seller and its affiliates.

The attorney’s role in drafting and negotiating the asset purchase agreement is identifying a) the assets transferring from the seller to the buyer and b) those assets that are remaining with the seller. This due diligence also includes handling various intellectual property and IT provisions, including, but not limited to:

  1. Definitions concerning the scope of purchased IP and IT assets, rights and liabilities.
  2. Representations and warranties concerning the purchased IP and IT assets, rights and liabilities.
  3. Covenants and other provisions governing the parties’ conduct relating to IP and IT assets after signing and closing.
  4. Ancillary IP documents, such as assignments, transitional licenses and services arrangements.

Click here for a due diligence checklist.

Intellectual property asset purchases differ from stock purchase and merger transactions. The buyer needs to ensure that it receives either the ownership of the intellectual property rights or the right to continue using those rights that are included in the purchased assets through an assignment agreement. This includes any additional intellectual property rights necessary to use those purchased assets.

The buyer should ask the seller to identify all federal, state and foreign intellectual property registrations and applications owned or held for use by the seller and included in the purchased assets. This list is the buyer’s starting point for preparing disclosure schedules for the purchase agreement.

Here is a list of the registered intellectual property that may be included in the purchased assets:

  1. Patents, patent applications and statutory invention registrations.
  2. Trademark and service mark applications and registrations.
  3. Copyright applications and registrations.
  4. Foreign design registrations.
  5. Mask work registrations.
  6. Internet domain name registrations.

While internet domain name registrations are not technically intellectual property rights, they are often, and should be, addressed.

See here, for other common terms and conditions used in asset purchase agreements.

Transfer of Domain Names

The buyer is usually responsible for filing the required documents with the relevant domain name registry. This should be explicitly set forth in the Purchase Agreement. The agreement should also prohibit the seller from registering or using a similar or related domain name(s).

The following provisions relating to the transfer of domain name(s) should be included in the intellectual property asset purchase agreement:

  1. The seller is the sole owner of the subject domain name.
  2. Warranties stating that the domain name may not be subject to any claims of infringement or other claims.
  3. Indemnity provisions for the buyer.
  4. The intentions of the parties to transfer the domain name itself.
  5. A provision listing the common law trademark, copyright, and other intellectual property rights related to the domain name subject to transfer
  6. A provision addressing the intersection of domain names and trademark law

The intersection of domain names and trademark law is often included in the Acquisition Agreement. This document outlines the terms and conditions, including the closing date and the payment method, for the sale of assets.

The exhibits to the Acquisition Agreement should include an electronic confirmation of the domain name transfer from the relevant registry and an assignment agreement.

Importance of IP Due Diligence in an Asset Sale

Before completing an intellectual property asset sale, buyers should conduct comprehensive IP due diligence. This process ensures that the seller actually owns the rights being sold and that no undisclosed third-party claims, liens, or licenses affect ownership.Key due diligence steps include:

  • Reviewing IP registrations, applications, and assignments.
  • Checking for pending litigation, opposition, or cancellation proceedings.
  • Confirming that all IP rights have been properly maintained (renewals, filings, etc.).
  • Evaluating the extent of IP protection in relevant markets (domestic and international).

Buyers should also confirm that trade secrets are protected through confidentiality agreements and that all employee-created IP has been properly assigned to the seller. Failure to verify these details can result in disputes and loss of value after the transaction closes.

Trademarks

If, through a sale of assets, the buyer acquires trademark rights it is not unusual for the transfer agreement to forego specifically mentioning trademark or other intellectual property rights. The intent to transfer trademarks with goodwill is presumed if a business is sold as a going concern, so it is not usually expressly delineated. Unless the transaction is between a parent corporation and their wholly-owned subsidiary. In that type of transaction, intellectual property rights will not automatically be included. The ownership of the intellectual property will remain with the parent corporation unless the agreement expressly provides for transfer to the subsidiary.

See an example of an asset purchase agreement here.

Valuation and Structuring of an IP Asset Sale

Valuing intellectual property assets can be challenging because their worth depends on their economic potential and market perception. Common valuation methods include:

  • Income-based valuation: Estimating revenue or royalties the IP can generate.
  • Market-based valuation: Comparing with similar IP transactions in the same industry.
  • Cost-based valuation: Assessing the cost of creating or replacing the IP asset.

In structuring an intellectual property asset sale, parties may opt for a full assignment (complete transfer of ownership) or a license arrangement (limited rights granted to use the IP). Full assignments typically require registration updates with agencies like the USPTO, while license arrangements must specify exclusivity, territory, and duration.

A well-drafted purchase agreement will include:

  • A detailed list of included and excluded IP assets.
  • Representations and warranties regarding ownership and enforceability.
  • Indemnification provisions for infringement claims.
  • Transition clauses covering ongoing use, cooperation in filings, and confidentiality obligations.

Integration and Post-Sale Considerations

After the intellectual property asset sale closes, integration of the IP into the buyer’s operations becomes essential. Buyers must:

  • Update branding, websites, and marketing materials to reflect new ownership.
  • Record IP assignments with relevant authorities.
  • Transition IT and data systems that rely on proprietary IP.
  • Ensure continued protection of trade secrets and confidential know-how through nondisclosure and employment agreements.

Both parties should maintain clear communication post-closing to address ongoing cooperation obligations, particularly in transitional licensing or joint-use arrangements.

Frequently Asked Questions

1. What is included in an intellectual property asset sale? It typically includes patents, trademarks, copyrights, domain names, and trade secrets, as well as related goodwill and license rights.

2. How is IP ownership transferred legally? Ownership is transferred through an assignment agreement filed with the USPTO or other relevant agencies, ensuring public record of the new owner.

3. What risks exist for buyers in an IP asset sale? Risks include undisclosed ownership issues, third-party infringement claims, or expired registrations—making due diligence critical.

4. Can a company sell only part of its intellectual property portfolio? Yes. Sellers can assign select assets such as a single trademark, patent, or software code base while retaining others for future use.

5. Why hire an attorney for an intellectual property asset sale? An experienced IP attorney ensures the sale agreement clearly defines all rights, mitigates risks, and properly records transfers. You can find an attorney on UpCounsel for professional assistance.

If you need help with creating an intellectual property asset purchase agreement, 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.