Reps & Warranties: Intellectual Property
Essential Question:
What IP do you own, use, or license, and who has the rights?
In Brief:
The IP you have developed and own must be in good standing if included in the deal. Plus, a buyer will want a discussion of who else is allowed to use these products.
A Buyer will also want to know what other IP is being used and licensed from another party in the normal course of business to ensure that those licenses continue to be available.
Category: Continued Diligence & Fact-Finding; Risk Allocation
What is it?
First, this rep is used to define the universe of intellectual property, including patents, trademarks, copyrights, and domain names, that are registered to the Company or that you have the license or right to use. Other issues addressed within these reps include: Are there or have there been any claims alleging infringement on intellectual property? Or claims on your intellectual property? How was your (software) intellectual property created? Does anyone have any subsequent rights or claims in your software? Does a third party have rights in any of your intellectual property? Do you employees sign intellectual property agreements or NDAs?
When does it matter?
Buyers want to ensure that they will have the necessary tools and assets to continue to run the business and that those tools are in good standing, that they will not be required to make unexpected payments, and that they know who else is allowed to use your IP, and whose IP you use.
What to look out for?
There are types of IP other than registered patents or trademarks. This rep may end up being a catchall for things such as trade secrets, developed hardware, etc. At the same time, if the understanding of IP is too broad, you can accidentally sign up to reps for things you don’t mean to. As a seller, the rule of thumb is to be very thoughtful about how licensed IP is presented and defined.
