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So you have just purchased a new business?  Are you sure you purchased it all?  You almost certainly purchased the stock and you no doubt arranged for the lease to the building to be transferred.  But did you take steps to ensure that you also purchased the intangible parts of the business that you paid for?

Often the intangible assets are what make a business purchase a safer bet than starting your own business from scratch.  Imagine then if you paid top dollar for a well-known retail store only to be required soon after the purchase to change the name of the store.  You may well ask how this could happen?  Well, sometimes even the heavy hitters get it wrong …

Take for instance, Volkswagen.  They pulled off somewhat of a coup by outbidding BMW for the acquisition of Rolls Royce but because they didn’t deal with the IP at the time of the purchase, they were out-manuvered.  They hadn’t undertaken the necessary checks, so they didn’t know that BMW were already owners of the Rolls Royce trademarks (having purchased them some years earlier).  So what happened?

At the time of the sale of Rolls Royce to Volkswagen, BMW were thought to have “missed out”, but their ownership of the Rolls Royce trademarks meant that they could prevent Volkswagen from producing a car called a “Rolls Royce”.  Consequently Volkswagen are now producing Bentleys in the old Rolls Royce factory, while BMW are producing vehicles with all the trademark Rolls Royce features under the Rolls Royce brand.

How can you avoid this type of mistake from happening to you?  The following are three key tips for purchasers when buying a business.

  1. Transfer IP Ownership

    Never assume that the trading name or other Intellectual Property (IP) is “part of the deal”.  Make sure your vendor can sell you what they are purporting to sell.  Check, or have your professional advisor check, that they are the owners of all relevant trademarks and other IP.  Remember to then take the next step – arrange for the legal transfer of ownership of the IP.

  2. Get Exclusive IP Ownership

    Make sure you understand what Intellectual Property is in the context of the business you are buying.  Then, make sure you understand what aspects you are paying for and whether you are purchasing exclusive ownership rights.  For example, you might be paying for a client list that the vendor intends to also retain for themselves.

  3. Only Pay For What You Get

    Only pay for what you are getting.  Double dipping for instance by a vendor should be prevented where possible.  Alternatively, if you are happy to share IP such as a client list with a vendor, do not pay top dollar for it.

How can you make sure you don’t make a mistake like Volkswagen? 

Often you will be working with professional advisors during the purchase process.  However not all professionals are specialists in Intellectual Property.  If possible, work with professionals who can facilitate your purchase and cover off all the IP aspects involved.  Making sure you have your bases covered at the start could prevent some nasty surprises later.