Buying Distressed IP Assets - The Importance of Due Diligence

By Suzzanne Uhland

Intellectual Property Rights

● Any investor considering purchasing intellectual property (IP) rights from a distressed company should consult an experienced attorney. While such acquisitions may appear to represent a bargain, potential purchasers will need to examine the particulars carefully.

● Both the asking price of the asset and the extent to which it will be integrated into the buyer’s business should determine the degree of due diligence required, as well as how clear the title to such an asset should be.

Due Diligence

Examples

● Even with a low selling price, if an electronic IP asset, for example, is slated to become part of the purchaser’s existing information technology network to such an extent that its removal would seriously impact the business, the purchaser must exercise extreme caution in obtaining a clear title.

● On the other hand, a suite of office furniture would be considered a much less risky asset because it could be easily replaced.

Other Considerations

● A potential purchaser should perform a careful check of the seller’s financial records to determine whether any liabilities may attach to the asset being purchased.

● Buyers should also know the type of bankruptcy status under which a seller is operating, as federal bankruptcy, creditor assignment, and “workout” proceedings produce differing effects on the business.