IPR VALUATION DURING MERGERS AND ACQUISTIONS (M & A)

INTRODUCTION 

In today's competitive business environment, every company aims to gain an edge over its competitors. Whether it's a start up or a well-established corporation, the goal is to lead with a large customer base and strong profits. These deals provide companies with immediate access to resources like technology, customer networks, and market share, essential for growth and expansion.

IP includes patents, trademarks, copyrights, and trade secrets, which are particularly valuable for start-ups due to their innovative ideas and technologies. M&A transactions enable companies to combine their strengths more effectively, enhancing productivity, goodwill, and wealth maximization. Understanding the importance of IP valuation in these transactions is key for companies. IP valuation involves assessing the worth of these intangible assets based on factors like market demand, technological relevance, and future revenue potential.

INTELLECTUAL PROPERTY AND IP VALUATION

Intellectual property (IP) refers to creations of the mind, like inventions, literary works, and symbols used in commerce. It's protected by laws, giving creators rights over their creations, ensuring they decide how their creations are used and benefiting from them.

IP valuation involves assessing the monetary value of these creations. Methods like income, cost, and market approaches are used. The income method estimates IP value based on expected future earnings. The cost method calculates value based on creation costs. The market method looks at similar IP transactions. In mergers and acquisitions, IP valuation guides decisions on buying companies for their IP assets, enhancing business capabilities and market position.

MEREGER AND ACCQUISTION

Mergers and acquisitions (M&A) are like when companies decide to team up or one company buys another. They do this to become stronger together, reach more customers, or make their business smoother. These deals can happen in different ways, like merging two companies into one, buying another company outright, or making partnerships. Companies do M&A to grow faster, enter new markets, or offer more products. It involves lots of careful planning, checking finances, and following rules to make sure everything goes well and everyone benefits.

DUE DELLIGENCE IN MERGER AND ACCQUISTION IN VALUING INTELLECTUAL PROPERTY

In mergers and acquisitions (M&A), due diligence is like doing thorough homework before buying something important. When it comes to intellectual property (IP), this means checking everything about the patents, trademarks, and copyrights of the company being bought. Experts look at legal documents to make sure these rights are valid and not in any legal trouble. They also review agreements to see if there are any limits on how these rights can be used. For example, if a company is buying another company known for its innovative technology, they would want to ensure that all patents related to that technology are properly owned and protected.

An example of how due diligence is done in IP is when a tech company plans to buy a smaller start up known for its software innovations. During due diligence, IP experts would examine all patents and copyrights related to the start-up’s software. They would also check if there are any ongoing legal disputes over these rights. This helps the buying company understand the full value and risks of the start-up’s IP assets before finalizing the acquisition deal. This careful investigation ensures that the buying company can use the acquired IP assets effectively and avoid any surprises after the merger.

ROLE OF IP VALUATION IN MERGER AND ACCQUISTION

In mergers and acquisitions (M&A), intellectual property (IP) like patents, trademarks, and copyrights are really important. When companies come together or one buys another, they often get valuable stuff like new technologies and brand names from the company they're buying. For example, when Microsoft bought GitHub in 2018, they didn't just get a platform for software code—they also got access to lots of software projects and the people who make them. This helped Microsoft become stronger in cloud computing and software tools.

IP valuation is crucial in M&A because it helps companies figure out how much these intellectual assets are worth. Experts look at legal documents to make sure who owns what and check if there are any legal issues with patents or copyrights. They also see how much trademarks are worth in the market. This way, companies can make smart decisions about how to use these new assets after the merger. By using IP wisely, companies can grow faster, stay competitive, and do better in their industries.

Case Study of Acquisitions

1.     Facebook acquisition of Instagram.

Facebook acquiring Instagram in 2012 was mainly about getting its intellectual property, like trademarks and copyrights. Instagram already had a strong brand value, so there was no need to change its name or logo. Facebook hoped to grow more by benefiting from the positive reputation connected to the Instagram name.

They got Instagram's software code on which copyright protection is accorded. It is the core of the app and platform. They also acquired the design elements of the app, like the user interface, and all the original content created by Instagram, such as marketing materials and guides. This comprehensive IP transfer helped Facebook not only own the technology and designs but also use Instagram's established content and brand image.

2.      Amazon acquisition of Ring  

In 2018, Amazon bought Ring, a company known for its smart home security devices like doorbells and cameras. As part of the deal, Amazon got patents, which are special rights to protect new and useful inventions. These patents covered how Ring’s cameras work and the software that makes them smart. For example, these patents helped Ring’s cameras connect easily with Amazon’s Alexa voice assistant. This means people could use Alexa to ask for a live view from their Ring cameras just by saying, “Alexa, show my front door.”

These patents also included technology that lets Ring devices work together with Amazon’s Echo Show. This device lets users see live feeds from their Ring cameras using voice commands. By owning these patents, Amazon made it simpler for people to use smart home security features and strengthened its own lineup of smart home products. This move helped Amazon offer better security options and make their products more connected and convenient for customers.

II. Case study on Mergers

1.      Merger of Disney and Pixar 

In 2006, Disney merged with Pixar in a deal worth $7.4 billion. This merger was important for Disney because it allowed them to get several types of valuable intellectual property (IP). First, Disney got Pixar's trademarks, including their brand name and logos. This meant Disney could use and protect the Pixar brand in their marketing and products.

Disney also got permission to use Pixar's movies like "Toy Story," "Finding Nemo," and "The Incredibles," including the characters and stories from these films. They also acquired patents for Pixar’s animation technology, such as the RenderMan software. This software was key for creating high-quality digital animations and was integrated into Disney's own animation work.

2.      Dow Chemical and DuPont Merger (2017)

In 2017, Dow Chemical and DuPont joined forces in a $130 billion deal to create a new company called DowDuPont. This merger was all about bringing together their valuable intellectual property (IP), like patents, trade secrets, and trademarks. By merging, they combined thousands of patents related to materials science, agriculture, and specialty chemicals. They also shared important trade secrets, such as special chemical formulas and ways to make products.

The merger was planned to split DowDuPont into three separate companies later on: Corteva Agriscience, focusing on agriculture; Dow Inc., focusing on materials science; and DuPont, focusing on special products. Each new company used the combined IP from Dow and DuPont. For example, Corteva Agriscience used the patents to make better seeds and crop protection products. Dow Inc. used the merged IP to create new packaging and products for consumers. DuPont concentrated on making advanced materials and electronics. This merger showed how combining IP can boost innovation and competition in different industries.

CONCLUSION AND ANYALYSIS

In each acquisition or merger—whether it's Facebook buying Instagram, Disney teaming up with Pixar, or Dow Chemical merging with DuPont—evaluating intellectual property (IP) was really important. IP valuation helped figure out the true worth of these companies beyond just their physical stuff or how much money they make. For instance, when Facebook got Instagram, they looked at how valuable its trademarks, copyrights, and software code were. These are crucial for Instagram’s app to work well and for people to recognize its brand.

Similarly, Disney’s merger with Pixar relied on valuing Pixar's patents and creative stuff like movies and characters. This made Disney's animation abilities even stronger. In the case of Dow Chemical and DuPont, their merger involved valuing patents and secrets in fields like materials science and farming. This helped them see how these assets could bring new ideas and let them lead their industries. IP valuation, then, was key in these big decisions, helping companies see and use the full power of their ideas for future growth and being better than the competition.