When purchasing a small business, many buyers overlook one important aspect of the deal: transferring intellectual property rights. Typically, IP rights include copyrights, trademarks, patents, and other non-disclosure rights. I’ve highlighted three basic questions you should always ask before you purchase a small business.
Can you and do you want to transfer the business’ trademarks?
In some situations even if the trademarks are transferable, you may not want to transfer them. For example, the business’ logo may infringe on rights of another business. You obviously wouldn’t want to transfer ownership and risk being held liable for trademark infringement once you own the logo.
In other instances, the trademarks may not be transferable if the seller does not have the right to transfer it to you. Trademarks may be subject to a license agreement that does not allow for the seller to assign the license agreement (or use of the trademarks) to a new purchaser. These are just two examples of the issues you may run into when transferring the business’ trademarks. You can search the USPTO database to determine if the trademarks are federally registered. Trademarks can be registered under the business owner’s name (versus the business’ name), and if that is the case then you’ll need to take steps to formally assign the trademark registration from the seller to you (or the business).
If you buy the business, do you automatically own the website as well?
Most people assume that when you buy a business the company’s website is automatically included in the sale. Unfortunately, this isn’t always the case, and this misperception can lead to significant delays and expenses post acquisition. Your purchase and sale agreement should include specific language regarding transferring the intellectual property rights associated with the website, including access to the website, ownership of the content on the website, and ownership of the domain.
Also, even if you include the right language in your contract, the seller must also have the right to transfer the rights. Many small businesses work with web developers to create the company’s website, and often the ownership and transfer of the rights to the website (especially the content) is restricted by the developer. If this is the case, it can be extremely difficult for you to maintain and make any changes to the website without the original developer’s assistance. As a small business owner, this can be a major issue that should be sorted out during the due diligence phase of purchasing the business.
Can a non-disclosure agreement between the seller and another party be enforced by the purchaser of the business?
There are two important questions to ask to try and sort this out: Does the purchase and sale agreement include language that assigns contract rights in the NDA to you? Does the NDA allow for assignment of the business’ contractual rights? If the answer is yes to both of these questions, then you can likely enforce the NDA. This can important to protect the business’ trade secrets and other confidential information that may have been released to the third party.
In addition to a long list of other issues to sort out during due diligence, it’s important that you explore these three questions to avoid any surprises regarding the company’s intellectual property and your rights to continue to use and protect it. Failing to sort out issues associated with intellectual property during the sale process can lead to significant hassles (and potential lawsuits).
If you have questions about your small business acquisition or navigating due diligence, please comment below or contact me to discuss your purchase or sale.
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