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Dancing on a competitor’s grave — six considerations when buying patents from a dissolved company

Dr Terence Broderick

By Dr Terence Broderick

Patent Attorney

Business is competitive. We all have rivals who inevitably take market share that we believe should be ours. In crowded commercial sectors, it’s often the case that some competitors fall by the wayside as they become unable to meet their debts.

Following the failure of a company, an Administrator or Liquidator will be appointed. They will often try to sell the company’s assets in an attempt to meet its obligations to debtors. The patents of a dissolved company are no different and these may well be the most valuable assets a company has. Often, however, the desire to realise funds can mean that there are some real bargains to be had.

Furthermore, the rights afforded by a patent aren’t necessarily impacted by its transactional history. An infringer of a patent infringes that patent, regardless of its owner. That patent may be one that you’re infringing, or one that a competitor’s infringing. Either way, the availability of such a patent may prove rather useful as you address your own infringement risk or seek to assert that patent against your competitor to realise income from it.

That said, there are some risks to consider before you look to acquire a patent from a company which is in administration or has been dissolved. Here are six key ones to think about — and although I’m focusing on companies facing administration here, similar considerations also apply to liquidation.

1. Pre-dissolution

Competitors aren’t likely to shout about their struggles — but whispers around your industry may tell you more than any announcement ever can. Struggles to pay invoices, unhappy suppliers and rumours about unpaid employees may all be clues to an organisation’s plight. Administration may soon follow and their patents, as an item of property, may be an asset which will come up for auction. Appointed administrators aren’t usually specialists in IP-based assets and may overlook these matters.

If you see or hear that a competitor’s going into liquidation or enduring any serious struggle, you may want to check its patent portfolio using publically-available databases, to see if there’s anything that would be of value. It would be a good idea at this stage to find out the status of any such assets and, importantly, keep a close eye on them — as their maintenance may not be prioritised by the appointed administrator. The maintenance of patents can be expensive and, in reality, sits below paying employees, HMRC, suppliers and other expenses which are key to the day-to-day functioning of a business.

While patents that have lapsed may be difficult to reinstate and not be worth the effort required to bring them into your portfolio, if your analysis of patent registers and publically-available information reveals anything of interest, an approach to the appointed administrator should follow to determine the price of acquisition. The advantage of pursuing these rights prior to dissolution is that it could well lead to a relatively straightforward transaction between the relevant parties — i.e. the old owner, the appointed administrator and your company. However, in order to enjoy any advantage associated with pursuing these rights prior to dissolution, prompt action is required to ensure that the transaction can be completed prior to the irrevocable expiry of the rights of interest.

2. Post-dissolution

A company which has been dissolved no longer exists and this causes the ownership of any patents to pass to the Crown, thanks to the maxim under English law that all property (including intellectual property) must have an owner. The patents pass to the Crown using the bona vacantia rules and are held in a resulting trust.

An approach will therefore need to be made to the Treasury Solicitor, who will be unlikely to treat your situation as a priority. Indeed, by the time an assignment can be completed, the patent of interest may well have lapsed. You may also require further legal advice, given that the original owner of the right would no longer exist, and the patent will likely need to be purchased at market value. The Treasury Solicitor passes costs onto an acquirer on a per-right basis, so a large portfolio may be costly in legal fees alone.

The value of any such patents or applications should, of course, be subject to a cost-benefit analysis to determine whether they’re worth the financial outlay. However, as an intangible right, the value of the patent to you may be significantly higher than the value it has as part of the liquidated company’s portfolio of assets.

It is, however, worth bearing in mind that a number of companies enter administration at the point at which it’s known what will become of its assets. In a so-called ‘pre-pack administration’, the company will have agreed to sell its assets before appointing administrators to facilitate the sale. This is a common way for an insolvent company to raise enough funds to pay off its secured debtors and HMRC. This can mean that the sale of any patents and applications may already have been agreed or even completed — meaning that any approach to buy those rights would be academic.

Ultimately, waiting until after dissolution to make an approach is likely to be disadvantageous. One way of mitigating the risk of a lapse is to pay the renewals yourself while any negotiation with a Treasury Solicitor takes place — but this can be an expensive gamble to take if the portfolio of patents is large, as the expense could be considerable and the transaction may not complete in your favour.

3. Restoration of the dissolved company

An application to restore a company can mean that any assets which passed to the Crown become the assets of the restored company — and a successful restoration of a company will enable the patents to be assigned away from the restored company if necessary. However, this process is extremely complicated and likely to involve multiple types of legal expertise, as the criteria for restoring a company from a dissolved position is extensive. The timescale and cost makes this an extremely unattractive option and one which is fraught with financial risk.

4. Risk management

Whichever strategy you adopt, extensive due diligence is advised. It won’t be possible for Treasury Solicitors or appointed administrators to enter into warranties about entitlement, validity or knowledge of prejudicial prior art in relation to the patents in question. A thorough investigation is advised. In addition, you should check the status of any such patents on the respective national registers. This will let you know if they’ve lapsed and need restorative action to be brought back into force, and if there are any anomalies in ownership.

Sometimes, the need for restorative action will introduce a big risk into the purchase, as some countries have a very high standard of proof for restoring a lapsed patent (if any remedial action is an option at all). For patents that have lapsed, very careful investigation should be carried out to determine whether the purchase is indeed worth it. Ultimately, a patent that has lapsed and can no longer be restored may well be a huge waste of money no matter what it covers. Always check with a patent attorney first to see if there’s any chance that a lapsed patent can be restored.

The ownership history should also be investigated, but this likely won’t be the problem that it may first appear. Some companies are very bad at updating patent registers, so it may well be that the dissolved company did own the patents but simply didn’t update the register. You may want to request copies of assignments from the dissolved company’s documentation as proof of any ownership and to clarify issues with chain of title. If the documentation is missing, however, the recordal of an assignment of a patent may be difficult as it may not be possible to confirm the chain of title between the registered owner and the party from which you are buying. Again, a patent attorney needs to be consulted if you identify any potential ownership issues.

5. Double selling

The Treasury Solicitor and the Administrator will be able to guarantee that they haven’t sold the patent to another party. You should be certain that this is the case before completing any transaction to buy a patent.

6. Licensees

The insolvent/dissolved company may have licensees who have rights to exploit the technology covered by the patent. These rights may since have terminated on insolvency, but this should always be investigated as part of a thorough due diligence process.

Licences are seldom placed onto public registers and may not be accessible as part of the documents of the insolvent company. If you have any suspicion that licensees may exist, the purchase should be treated with caution, particularly if the licensees are not visible. Making contact with the former employees of the insolvent company can be an effective way of establishing the existence of licensees, but caution should be exercised, particularly if the patent may be of interest to a number of parties.

Seek advice from a patent attorney

Acquiring a patent which was owned by an insolvent or dissolved company may enable you to acquire the rights to valuable patented technology, but there are indeed a number of risks to consider. We can assist you with this complex process — from checking the status of patents to approaching the Administrator or Treasury Solicitor to see if a transaction is possible.

If you’re interested in buying patents from a dissolved company, or just want to find out more, feel free to get in touch with me at tsb@udl.co.uk.

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