Maximizing Value and Minimizing Risk: Key Considerations for Protecting Intellectual Property in Merger and Acquisition Transactions

In today’s digital age, it is becoming increasingly evident that intellectual property (IP) is a valuable asset for businesses. In the context of merger and acquisition (M&A) transactions, IP law can play a critical role, as the acquisition of valuable IP assets can significantly impact the success of the deal. IP assets, such as patents, trademarks, copyrights, trade secrets, know-how, and other proprietary information, are key drivers of a company’s competitive advantage. This is because the acquirer may seek to acquire these assets to enhance its own product offerings, expand into new markets, or grow its business in other ways. Therefore, it is essential to carefully consider the IP implications of any M&A transaction to maximize its value and minimize its risks.

Basically, the rules governing merger and acquisition in Indonesia are regulated by the Law Number 40 of 1997 concerning Limited Liability Companies, some of which are stipulated in Law Number 5 of 1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition and Government Regulation Number 28 of 1999 concerning Merger, Consolidation, and Acquisition of Banks.

The regulatory framework governing IP in relation to mergers and acquisitions in Indonesia is currently less rigidly defined. Nonetheless, the legal system in Indonesia acknowledges the principle of ‘freedom of contract’, as provided in Article 1338 of the Indonesian Civil Code. This allows parties to a transaction to determine the terms and conditions of the agreement, including issues related to IP, through a legally binding and enforceable contract.

Below are some of the key considerations related to IP in M&A transactions:

  1. Conducting a thorough IP due diligence is a critical step in any M&A transaction. It involves analyzing the target company’s IP portfolio to evaluate the benefits, value, and risks associated with the transaction. The Indonesian Intellectual Property Law provides protection for various forms of intellectual property, including patents, trademarks, copyrights, industrial designs, and trade secrets. During the due diligence process, the acquirer may uncover potential IP issues that could impact the transaction. For example, the acquirer may need to confirm the validity and enforceability of the target’s IP ownership and utilization, ensure the proper registration and use of the target’s trademarks, and assess the target’s measures for safeguarding its trade secrets. It is also crucial to identify  the transfer process  of intellectual property rights, which possibly rise any  ownership disputes or infringing activities. 
    Moreover, the due diligence process is primarily aimed at mitigating risks, and intellectual property poses no exception to this. One must comprehend the potential risks of claims from competitors, former employees, subsidiary companies, and others that may arise from acquiring and using the target company’s intellectual property. In addition, when a company conducts a due diligence process, its main goal is to minimize any possible risks. This applies to all aspects of the company’s operations, including its intellectual property.
  1. During the negotiation of a merger or acquisition agreement, IP related terms may be discussed to safeguard the interests of both parties against any potential claims that could arise post-closing. In Indonesia, IP assets may be owned by either individuals or legal entities, highlighting the importance of identifying and properly documenting the ownership of the target’s IP assets. The transaction agreement can also include representations and warranties from the target company that focus on the validity and enforceability of its IP assets. As the value of IP can be difficult to determine, it is crucial to pay close attention to the terms of the transaction agreement, particularly those pertaining to IP assets such as ownership, licensing rights, and indemnification provisions. These considerations can significantly impact the M&A negotiation process.

To summarize, the law regarding IP is an important aspect to consider in M&A deals. It is crucial for acquirers to conduct a comprehensive IP due diligence which include identifying  any possible IP problems and negotiate suitable IP-related terms in the transaction agreement. By doing so, the acquirer can be confident that they are acquiring the target’s IP assets in a way that is legally secure and enhances the value of those assets.

Email: astari@aco-law.com

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Picture of Fitri Astari Asril
Fitri Astari Asril
Associate

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