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We will track herIf you are considering buying a technology business, then the following are some key due diligence points that you should consider regarding intellectual property rights:

·         Licences: Does the licence permit the licensor to use the rights itself or grant licences to others? In intellectual property terms is the licence "exclusive", "sole" or "non-exclusive"? does the licence allow the licensee to have the right to sub-licence its customers (rather than have a direct licence from the licensor to customers).

·         Information. What level of information does the licensor require about the use of the licensed software?

·         Territory. What is the geographical scope of the licence? What restrictions are there on export? Does the defined territory allow the target to exploit the licensed intellectual property rights in all of its key markets and in jurisdictions where the target is looking to expand into?

·         Restrictions. Does the licence contain restrictions on how the intellectual property can be used?

·         Term and Termination. What is the remaining term of the underlying intellectual property? What post-termination restrictions are there? Under what circumstances can the licensor terminate? Is the licensee protected against early termination? Does the licensor have the right to terminate the licence if the ownership of the target changes. Will the buyer need to obtain the licensor's consent to the proposed transaction or pay a fee?

·         Royalties. What proportion of the revenues does the target have to pay to the licensor? Is the level reasonable? Is the licence or its exclusivity (if applicable) terminable if the target fails to hit minimum royalties?

·         Updates or new versions. If the licensor creates any new versions, upgrades or updates to the licensed intellectual property, will the target have the right to use such new versions, upgrades or updates? Are these terms clearly defined? This is important as different rights and obligations may attach to each of these items.

·         Customisations. Does the licensee have the right to modify or customise the licensed intellectual property? If so, who owns the intellectual property in those customisations? If it is the licensor, check that the licensee has the right to use the customisations under the terms of the licence, ideally on a royalty-free and sub-licensable basis.

·         Infringements. Who can take action if the licensed intellectual property is infringed? In the case of a non-exclusive licence, the buyer should ensure that the licensor is obliged to pursue infringers, particularly where the intellectual property is material to one of the target's key products. In the case of an exclusive licence, check whether the obligation is on the licensor or licensee. The licensee should ideally have the conduct of any case, unfettered by the licensor. At a minimum, the licensee should have the right to be consulted about how the licensor conducts the case and any settlement negotiation.

All articles are for general purposes and guidance only and do not constitute legal or professional advice. Copyright 2011 Anassutzi & Co Limited. All rights reserved. Information may be shared or reproduced only if accompanied by the author’s name and bio.

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