Intellectual Property Asset Purchase Agreement: Everything to Know
An intellectual property asset purchase agreement identifies a seller’s intellectual property rights, and the assets and liabilities attached to them.3 min read
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:
- Definitions concerning the scope of purchased IP and IT assets, rights and liabilities.
- Representations and warranties concerning the purchased IP and IT assets, rights and liabilities.
- Covenants and other provisions governing the parties’ conduct relating to IP and IT assets after signing and closing.
- Ancillary IP documents, such as assignments, transitional licenses and services arrangements.
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:
- Patents, patent applications and statutory invention registrations.
- Trademark and service mark applications and registrations.
- Copyright applications and registrations.
- Foreign design registrations.
- Mask work registrations.
- 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:
- The seller is the sole owner of the subject domain name.
- Warranties stating that the domain name may not be subject to any claims of infringement or other claims.
- Indemnity provisions for the buyer.
- The intentions of the parties to transfer the domain name itself.
- A provision listing the common law trademark, copyright, and other intellectual property rights related to the domain name subject to transfer
- 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.
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.
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