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What Are The Key Factors to Negotiating an IP Acquisition? Six Considerations

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What Are The Key Factors to Negotiating an IP Acquisition? Six Considerations

By: Sandy McMahon

A company is interested in acquiring either the intellectual property of another company or the company itself. The target is a minor division of a larger parent company, and is not a strategic focus for them. The CEO contacted the parent and confirmed their interest in a deal. What are the key factors to negotiating an IP acquisition?

Advice from a group of CEOs:

You need to assure your rights to both current IP and future enhancements. This applies whether the parent retains ownership of the IP or you purchase it and grant a license to use of the IP to the parent.

* Look for clear language as to what constitutes base IP, derivative IP and extensions of the IP. You want to preserve your interest in future derivatives and extensions that you create.

There is a material difference between your position and the parent's.

* If the parent retains the IP, they also gain certain rights to IP extensions based on the current IP. If you own the IP, their potential rights to future IP are lost unless you grant them these rights.

* If the parent feels that this IP is potentially valuable to them - whether they are currently taking advantage of it or not - this will be one of the more difficult aspects to the negotiation.

What options are there besides acquiring the company?

* The parent can grant a fully paid license to the technology, with access to the people and assets, waiving residual rights to future IP extensions, and no restrictions on transfer.

* Another option could be a one-time royalty fee that is a perpetual license.

Within your due diligence, try to get a sense of the parent's motivations and concerns for entertaining your interest in the acquisition. This will help you to frame a deal that works for both parties.

* For example, the parent company may fear that you purchase the IP, are in turn purchased by a competitor, and that the parent is locked out of this piece of the market. In this case, you might grant an irrevocable right to access the technology to the parent and thereby address this fear.

If the parent has been an active licensor or seller of IP, look for lawyers who know the company. Try to secure one of these as counsel for your negotiation.

From a liability standpoint, it is better to buy or license the IP and technology than the company. Liability travels with the company. Part of your negotiation will be who inherits any carry-over liability.

Article Source: http://articles.tiptopweb.info

Sandy McMahon is publisher of Ceo2Ceos (Ceo2Ceos.com), a non-commercial site for executives to share best practices. He is also President of Executive Forums of Silicon Valley. With over 20 years of executive experience, Sandy has a BA from Brown, an EdM from Harvard, and an MBA from Duke.

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