Intellectual property a key factor in any M&A
Vital to identify such assets properly in any commercial transaction in Africa
IT IS well known that there is a growing amount of mergers and acquisitions (M&A) and other commercial activity taking place in Africa, with SA being recognised increasingly as the gateway to Africa.
Intellectual property (IP) is more often than not one of the last legal issues to be considered in any M&A or other commercial transaction. This is surprising, given that every company or business has at least one trademark and that IP, particularly brands and trademarks, are usually a company’s most valuable assets.
Companies need to ensure, in any M&A or other commercial transaction, that relevant IP is identified properly, that its validity and enforceability is investigated and verified and that it is dealt with appropriately in the agreements drafted.
The first step in this process should be to undertake a proper IP due diligence investigation in which appropri- ate questions are directed to the target entity, detailed and meaningful responses to those questions are elicited, and agreements with IP implications are analysed fully. Independent searches should be carried out to verify the existence and status of any statutory registrable IP such as patents, trademarks, registered designs and plant breeders’ rights. In SA this is a straightforward process as currently not all of the South African Company and IP Commission’s (CIPC) records are electronic and manual searches are possible. The records are easily accessible and are up to date.
The validity and enforceability of all relevant registered IP must also be assessed properly. As far as patents are concerned, SA has a deposit patent registration system. Therefore, provided that the relevant forms are properly completed and the requisite fees are paid, the patent will be granted in SA. There is no substantive examination as to the novelty or inventiveness of the subject matter of an invention and, as a result, a patent that is registered in SA does not necessarily mean that it is valid and enforceable in this country. It is, therefore important that a proper assessment of the novelty of an invention and the validity and enforceability of any South African patents for such invention be carried out as part of an IP due diligence investigation.
Although searches for registered IP can be done fairly easily in SA, this is unfortunately not the case in the rest of Africa. In most other African countries, IP registries do not have electronic or computerised records and the manual, paper records are usually not up to date, particularly as far as renewals, changes of proprietor or applicant name, licensees and transfers of ownership are concerned. This means, firstly, that it is difficult to identify registered IP. Secondly, it is difficult to verify the status of such IP with any certainty. Lastly, IP due diligence investigations in these countries are usually expensive and time-consuming. These factors should not detract from the importance of obtaining as much information as possible on registered IP in African jurisdictions.
In many African countries it is mandatory for licensees to be recorded on the relevant official register. A failure to do so can result in the goodwill flowing from the use of the trademark accruing to the licensee and not to the registered proprietor which, in turn, can result in the proprietor being unable to enforce its rights. This is another reason why it is important to carry out proper IP due diligence investigations in African jurisdictions.
Due to the challenges faced in conducting meaningful IP due diligence investigations into registrable or registered IP in African countries it is important that strong and comprehensive warranties be obtained from the proprietor(s) of any relevant African IP in