Intellectual property (IP) is the lifeblood of the technology industry and an essential component in technology law. Intellectual property includes patents, which protect inventions; trademarks, which protect brand names and logos; and copyrights, which protect original works of authorship. When tech companies engage in merger and acquisition activities, they gain ownership of the intellectual property associated with the target company. This is a primary benefit of M&A to tech companies because it allows immediate access to new technologies, without having to build from scratch. Therefore, the value of the target company is directly affected by the value of its IP.
Intellectual Property Due Diligence
When conducting IP due diligence, it is essential to consider how you will protect the IP value, in order to maximize the value of the acquired intellectual property. To protect the value of IP tech companies, consider these two things:
- The credibility of the company’s IP
- The branding of the company’s IP
No one will complete a transaction with a company they cannot trust. Therefore, it is important to have a full understanding of the intellectual property held by the target company, in order to remain credible. There is no place for embellishments in IP-heavy transactions. For example, claims of “patented” status when the IP is only “patent pending,” may make the deal more enticing to buyers on the front end of the deal. However, the deal will be placed in jeopardy when the potential buyer learns of the true patent pending status. This will cause the buyer to either view the target company as untrustworthy, for making false claims, or as unprofessional for failing to uncover the patent status during the due diligence process.
It is essential to focus on the branding of IP to drive up perceived market value. With the rise of silicone value, public awareness has also risen for tech companies. Making brand awareness is an important practice because it can restrain or increase the value of IP. For a positive example of brand awareness driving up value, we can look to Facebook’s attempted acquisition of Snapchat in 2013, for $3 billion. Snapchat had no revenue at this point, and the value was based on its positive social media perception as well as its technologies. Conversely, Facebook itself felt the adverse effect of public opinion on value when its stock value dropped 7% during a highly publicized data privacy scandal in 2018. [1]
[1] https://www.cnbc.com/2018/11/20/facebooks-scandals-in-2018-effect-on-stock.html
