One of the most frequently overlooked aspects of the sale of a business is the transfer of intellectual property. This includes, among other things, copyrights, trademarks, patents and non-disclosure rights. There are some basic questions that a purchaser of a business should ask in this regard. Set forth below is a list of three such questions and some interesting answers that may not be obvious:

  1. If the business has a logo, can it be transferred?

Answer: Maybe not. If the logo infringes on the intellectual property rights of a third party, even if it can be transferred, it should not. Essentially, the purchaser is buying a lawsuit. Likewise, the logo might not be available to be sold, such as if the seller uses it under a license agreement which does not allow for assignment to a new purchaser. There are many other examples, but the point is that just because the seller is using the logo does not mean it can or should be sold.

     2.  If the buyer purchases the business, does that mean he automatically owns the business’ website?

Answer:  One might think so. After all, of what use is the business’ website to the seller after he sells the business? However, the answer is no. The reason resides on two levels. First, the sale agreement and ultimate bill of sale must have sufficient language in it to transfer the intellectual property rights to the website. Second, even it does, the seller must have the right to sell that intellectual property. For example, what if a website developer later claims that it did not give the seller the right to the website’s underlying source code? In such event, how does the buyer hire someone else to make renovations to the website that would involve using that source code? So, does the buyer really own it?

     3.  If the Seller entered into a non-disclosure agreement with a third party concerning the seller’s trade secrets, is that agreement enforceable by someone that buys the business?

Answer:  This is another maybe. The legal analysis is on two levels. First, did the sale agreement and ultimate bill of sale assign contract rights in the non-disclosure agreement? Second, did the non-disclosure agreement allow for that assignment of the business’ rights?
In sum, when purchasing a business the buyer must be acutely aware that the intellectual property it thinks it is purchasing, may not actually be transferred. It is critical that the underlying legal documents be scrutinized to ensure that this does not become a problem later on.

Comments/Questions: gdn@gdnlaw.com

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