SELLING THE FARM? THERE IS MORE THAN JUST THE COWS TO CONSIDER!
Intellectual Property Pitfalls in an Asset Sale / Purchase Transaction
As professionals working in intellectual property law, we are oftentimes asked by clients to assist them with transferring intellectual property purchased via an asset purchase agreement that has already been finalized and signed.
In many circumstances the form of agreement, while perfectly suited to a transaction where there is the sale of tangible assets, is inadequate when considering the transfer of intellectual property. The inadequacies occur on both sides of the transaction. From the vendor’s side, the agreement may fail to associate a value to the intellectual property being transferred; and from the purchaser’s side, the agreement may fail to include the applicable assignments of registered and unregistered trademarks, copyright, waiver of moral rights, domain names, trade names and trade secrets. The agreement may also fail to provide a non-competition and/or non-solicitation clause with respect to one or more of the following: establishment of a similar business, approaching current employees, distributors and/or clients.
When entering into an agreement where intellectual property is being sold, the vendor should ensure that value is being assigned to these intellectual property assets and the purchaser should ensure that there is satisfactory language to accomodate the proper transfer of such assets:
- registered trademarks - searches on both the trademarks and the vendor should be conducted to ensure that all registered trademarks are included for transfer in the agreement. If the business of the vendor is an international one, searches should extend beyond Canada and the United States;
- unregistered trademarks - a search of the vendor’s website should be done to confirm that there are not any unregistered trademarks which the vendor uses in association with its business. Unregistered trademarks also have protection under common law and accordingly, should be included in any asset transfer. The purchaser should also obtain evidence of first use of any unregistered trademarks and confirmation as to the entity that first used the unregistered trademarks so that if the purchaser later wishes to register such trademarks, it can file an accurate trademark application;
- copyright - if there are any design logos that are used in association with the vendor’s business that are part of the asset sale, the copyright in that original work needs to be assigned and any moral rights existing in that original work must be waived in order for the purchaser to have full ownership of the logo;
- domain names - the purchaser will want to ensure that the owner of the domain name that contains the name of the business being purchased, is also transferred;
- patents and industrial design - it may be that the assets being purchased includes the inventory of a produced good and the right of the purchaser to continue to produce such goods. When this is the case, it should be determined whether there is a patent or industrial design that is applied for or registered that will need to be transferred.
This list is not exhaustive as each transaction involving intellectual property is unique and needs to be specifically documented to ensure that all of the intellectual property is being considered. If you are contemplating buying or selling assets that include intellectual property, an intellectual property lawyer will ensure that your needs are covered.