9 Major Hidden IP Costs Of Mergers And Acquisitions—And How To Overcome Them

When corporate transactions involve a large volume of intellectual property (IP) rights or span multiple countries, the costs can quickly add up. As can be seen from recent mergers and acquisitions (M&A), unplanned or unforeseen IP tasks can quickly add to the legal costs. Prepare to manage IP effectively during M&A activities with our guide to the nine most hidden IP costs.

Failure to plan for IP matters during mergers and acquisitions can lead to unforeseen legal costs; in some cases, amounting to as much as 30% of the entire IP project budget. These costs are unforeseen because the key people involved in the transaction are either unaware of them, do not know how to handle them, believe they will be simple to address, or mistakenly expect their support team to just take care of them. However, overlooking some of these even "simple" tasks can end up blowing your entire IP budget.

In recent years, we have saved companies across multiple industries millions of dollars by identifying and mitigating potential IP-related costs. Here we share the nine most common unexpected IP costs and how to implement an effective cost reduction strategy to manage them.

What are the common hidden intellectual property costs in mergers and acquisitions?

1. Waiting to Transfer Rights

Merging companies often do not realize the implications of waiting to transfer trademarks. One common approach is to wait to file the ownership change along with the renewal. The thought is that this will save money by combining the tasks; however, this is often far from being the case. Official and agent fees will still have to be paid to file the changes on top of your usual renewal fee.

Why can waiting to transfer trademarks during a merger increase costs? Rather than benefit from the economies of scale savings possible in a large-scale IP transfer project, you will be paying for one-off changes per trademark. There is also the risk of possible complications in countries where you often have ongoing litigation, are actively filing new applications, or face customs issues regularly.

2. Underestimating Document Legalization

Legalization requirements vary based on the countries in which you are transacting business, and the costs for managing the legalization process for each document and jurisdiction can quickly add up.

How do document legalization fees impact the IP budget in cross-border deals? For instance, legalization costs for the UAE can exceed €900 per document. For a recent complex merger and acquisition project, one company spent over €80,000 on document legalization just for the UAE. Clearly, it is important to identify such legal costs at the time the IP transfer project is being negotiated.

3. Overlooking "All-or-Nothing" Countries

Knowing the rules of engagement in each country can help you to predict the legal costs (ideally) before finalising a transaction. This includes "all-or-nothing" countries. In the context of IP transfers, these are countries where you cannot just file a merger or name change for a single mark or patent. Instead, you have to file changes for all marks or patents in the name of the entity. This can drive your costs way up!

4. Getting Caught Out By Associated Trademarks

Associated trademarks can also affect the cost of IP transfer in M&A activities. Some countries require you to assign all "similar" trademarks together, even if you are no longer interested in them. This can throw a wrench in your budget if you expected to drop some marks that are associated with the ones you wanted to keep. Be sure to know which countries have the associated trademark designation so as not to be caught off guard.

5. Omitting Translation Costs

The documents required for registering changes in ownership are often long. When merging or acquiring companies have IP rights in many markets and languages, it can be very costly and time-consuming to manage the documents required to file the changes at the various local patent and trademark offices (PTOs). By anticipating this need before the work, protocols and templates can be put in place to address these issues. If handled properly, it could save a company tens of thousands of euros in legal costs.

6. Forgetting In-House Costs and Project Timelines

The paralegals working for you are hired because they already have an existing job to do. They may also not possess regular and routine experience coordinating worldwide transfer or assignment projects. Even if they do, projects of this nature will consume their time, and this will have repercussions for the workload they were originally hired to do. While the bulk of the work comes in the first 12-18 months of a project, some IP assignment projects can take up to 10 years to be completed.

7. Missing Errors in Ownership Records

If a business or portfolio has gone through many business changes and its older chains of title are not up-to-date, those issues will need to be addressed before or as part of the IP transfer. Ignoring them will result in office actions or rejections at the PTOs. Companies sometimes spend an amount of up to 30% of their initial budget on portfolio "clean-up" tasks. This can be avoided by filing changes when they occur.

8. Paying Late Filing Fees

Not all countries have the same time window to file updates. Some have a window as long as three months, while others, like Syria, have only two weeks. The PTOs in these countries charge fines, which often compound the longer you wait. Be sure to know the time window of each country in your portfolio to avoid another potential cost.

9. Not Assigning IP

A company's IP assets are incredibly valuable, but, surprisingly, some executives would consider gambling with them by deciding not to assign the IP during a merger or acquisition. The business loss and cost to reclaim a lost trademark in any country can be tremendous. Missing the chance to assign IP can have serious long-term consequences not only for a company's IP department budget but also for a company's future success.

Don't Get Caught Out By the Hidden IP Costs of Mergers and Acquisitions

Certain formalities apply when dealing with mergers, acquisitions, or even simple name change projects. Any misstep could be costly, possibly even resulting in lapsing a company's IP rights. The costs mentioned in this article are some of the most overlooked matters in mergers and acquisitions. They may be routine matters, but they could end up sinking your budget depending on the volume of IP to be assigned.

Working diligently to predict and counteract these costs with your legal team and partnering with a trusted IP recordals specialist, such as Questel, can help your company save time and money. If you're planning an M&A transaction, we recommend you discuss these costs with your team to ensure they are properly addressed and mitigated.

To discover more IP recordals best practices, download our eBook ' How to Prepare Effectively for IP Recordals Projects ' or contact our subject matter experts today.