Role And Significance Of IP Due-Diligence In M&A Transactions In India

With time intellectual property management has become a major aspect of business and growth. India has seen a major development in Intellectual Property Rights (IPR) jurisprudence in recent years, as a result, the importance of intellectual property has significantly increased in running and maintaining strategic advantages for businesses. Companies frequently seek to grow their businesses or enter new markets by acquiring other companies, particularly those with intellectual property (IP) and/or technology. Hence, more and more mergers and acquisitions involve intellectual property which gives rise to the demand for Intellectual Property (IP) Due-Diligence at the time of Mergers, Acquisitions, etc. of such businesses. This Article aims to empower & educate investors and other business personnel about the Significance of IP Due-Diligence in an M&A Transaction, how to minimize future legal risk and some examples of goods and bad IP due diligence.

M&A TRANSACTIONEvolving Significance of IP Due-Diligence for an M&A Transaction

For many businesses, intellectual property is the most important asset type. Unlocking the value of a target’s intellectual property (IP) can serve as the primary foundation for an M&A transaction and is a significant driver of M&A activity. A target’s firm might be reliant on IP in a variety of ways. IP can be shared across many jurisdictions and business divisions within a firm.

The decision of “what goes where” is not black and white, and IP can be sliced and diced to meet the parties’ commercial interests. The cross-border effects of the transaction must be considered when allocating IP rights between buyer and seller. It is critical to define which party to a transaction has the right to practice a certain IP asset and which party has the right to exclude it. Maximizing value necessitates a thorough knowledge of each party’s commercial IP objectives, particularly whether a party is more concerned with its freedom to operate or its right to the IP portfolio as a serious barrier to entry for rivals. There are no hard and fast rules to transfer an intellectual property however the following table tries t describe the ideal interests’ buyers and sellers should have for IP transfer in an M&A transaction or otherwise:

Interest of buyers Interest of sellers
Buyers are primarily concerned that they acquire exclusive, unencumbered, and marketable title and/or a valid license to all of the seller’s IP necessary to exploit the divested business or assets. It does not assume the risk for IP matters for which there are inherent unknown risks (e.g., freedom to operate, validity and enforceability of IP)
The purchased/licensed IP is valid and Enforceable with no There are no actual or threatened claims of infringement, misappropriation, or other violations of third-party IP IP assets of seller which are not part of the transaction are not unnecessarily encumbered by the transaction
There are no challenges to the purchased/licensed IP and it shall enjoy the freedom to operate with respect to the divested business or assets. It is not providing any assurance for third party IP matters which seller does not control (e.g., the inability to ensure that IP licensed from third parties will be made available to buyer on the same or similar terms as enjoyed by seller)

Pitfalls to Check

  • Joint ownership of Intellectual property

Joint ownership by the company and the customer/consultant/contractor involved, joint ownership has the potential to create business and enforcement challenges. Apart from that, it can be a deal breaker if the seller cannot obtain all of the rights to the IP prior to the closure of the deal.

  • Missing IP

Every now and again, significant IP gets left out of a sale by accident or design. The finest example is the well-known cautionary story of Volkswagen Group’s acquisition of Rolls-Royce Motor Cars Ltd. (VW). Vickers PLC (the parent corporation) presented Rolls-Royce Motor Cars Ltd. for sale in the late 1990s. Rolls-Royce Motor Cars Ltd. manufactured premium automobiles under the Rolls-Royce and Bentley brand names. BMW and Volkswagen were both interested, with VW ultimately outbidding BMW and paying between $700 and $800 million for Rolls-Royce Motor Cars Ltd.

Following the completion of the transaction, it was revealed that, while VW had purchased the premium automaker’s previous personnel, plant, equipment, and designs, VW had not secured the right to use the Rolls-Royce brand and badge. The marks were really held by Rolls-Royce PLC (a distinct aircraft engine company) and had been licensed to the manufacturer Rolls-Royce Motor Cars Ltd. Furthermore, the licensing agreement stated that if the carmaker, Rolls-Royce Motor Cars Ltd., was sold to a foreign owner, Rolls-Royce PLC would keep certain marks, including the Rolls-Royce name and emblem. To make matters worse, Rolls-Royce PLC (the aviation engine subsidiary) then licensed those coveted marks to BMW rather than VW.

The lesson which can be learned from this deal is the importance of verifying the IP asset, or rights to use those IP assets before the persuasion to close the deal.

  • Preexisting IP-related contractual obligations

IP ownership clauses can be expected to be in certain agreements such as development agreements, consulting agreements, confidentiality agreements, etc. However, sometimes IP ownership clauses can be hidden in such agreements that the Buyer may not be interested in fulfilling after acquisition or amalgamation. Henceforth the need to identify pre-existing rights, obligations, and liabilities is necessary in order to avoid any future rebounds after closing.

  • Expired/ Lapsed/ Abandoned or under prosecution trademark/patent or any other intellectual property

When a patent application is originally filed, the claims may be quite wide in order to achieve the greatest reasonable scope. Most claims, however, are narrowed—sometimes significantly—during prosecution. As a result, the extent of prospective patent coverage is rarely identified with clarity early in the prosecution process.

When analyzing such deals, a buyer should exercise reasonable caution.  To avoid such issues in the future, A buyer expects explicit representations and guarantees on the definition of intellectual property, the seller’s ownership, infringement of the seller’s IP, and non-infringement of third-party IP. To avoid unpleasant surprises, a buyer will also likely negotiate for a representation from the seller that no claim by any third party has been made, is currently outstanding, or is threatened that contests the validity, enforceability, use, or ownership of the IP.


Intellectual property rights may assist a firm in gaining a competitive edge in a variety of ways and can become one of the most crucial concerns in a merger, acquisition, or carve-out, as demonstrated by the Volkswagen and Rolls-Royce transaction. IPRs must be thoroughly integrated into a company’s entire strategy in order to be used effectively. This is more common in huge corporations than in small businesses. Small businesses frequently lack or cannot afford to develop certain expertise.

Protecting a company’s intellectual property assets in M&A transactions is the most important task at hand because the company’s existence, goodwill, and profit are all dependent on it. Every phase of the M&A transaction must be approached with extreme caution in order to benefit both parties to the transaction. As rightly mentioned in the article ‘IP issues in M&A’ by Financier Worldwide published in July 2019 addressing the fact that the “difficulty lies in the fact that IP portfolio analysis is complex, requiring specialist knowledge to find potentially problematic points.” Henceforth, its recommended to hire specialized attorneys to head such transactions, Khurana & Khurana Advocates and IP Attorneys specialize in all areas of IPR laws and is one such firm that can help in this regard.

Author: Ravi Raj, an intern at IIPRD, in case of any queries please contact/write back to us via email

Leave a Reply

Your email address will not be published.

nine + eight =


  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • September 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010