Role of Intellectual Property in Knowledge Economy

Ravi Bhola & Shreya Dave
Partner & Head, Associate, Litigation-K&S Partners
Monday, January 2, 2017
Ravi Bhola & Shreya Dave
It is often said that "Knowledge is Power..."
"...But not unless one can enforce it". added an IP Attorney.

Global economy is pivoting today on a knowledge-centred mechanism. There is a vast change in how the four factors of production for any business are perceived today. The timeworn concepts of Land, Labour, Capital and Entrepreneurship are undergoing a paradigm shift wherein a new element is introduced as 'Capital' and that is the Intangible Assets. These assets maybe as the most advanced technology, or the most cost-efficient method of production, or the most unique products, or the goodwill, or in form of royalties.

It is evident that apart from harnessing and promoting innovation, Intellectual Property Rights (IPR) is about monetization and enforcement. Additionally, IPR provide a legal basis to any business house enjoy monopoly and hence have a sustainable competitive advantage.

Further, in any transaction, value of IP continues to play an ever increasing role, given the rights attached therewith. Intellectual Property can be a very powerful strategic weapon in a takeover or a buyout environment. It is well documented when Volkswagen bid for Rolls Royce in 1998, it was probably under an impression that the deal included a perpetual license to use the 'Rolls Royce' and 'Bentley' trademarks. However, as it turned out, owing to a 'trademark ownership' clause 'Rolls Royce' trademark persisted to be an asset of Rolls Royce group and was not deemed licensed under the said deal. The irony is that not long after, BMW which was a competitive bidder of Volkswagen, acquired the 'Rolls Royce' trademark to start a joint venture of BMW and Rolls Royce.

It is essential for corporate houses and specifically, counsels, attorneys and financial advisers to understand the transfer of IPR as an integral part of a larger transaction. It is here that apart from due diligence which is conducted at the time of any merger or acquisition or any major financial deal, a specific IP due diligence ought to be conducted. Also, IP due diligence ought not be limited to scenarios of asset transfer alone, and should be extended to deals revolving around share transfer. It is pertinent that any transaction that might involve transfer of IP, not only the asset value but also encumbered liability (if any) needs to be assessed. An essential aspect to be kept in mind while conducting IP due diligence is that focus should be given on warranties to substantiate 'right to use and delegate the right to use' than warranty as to the 'ownership'; former generally proves to yield better financial returns.

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