Nov 4, 2009
How broad is the intellectual property representation?
The intellectual property representations are often among the most heavily negotiated representations in the purchase agreement. In most cases, the company will be asked to make representations to the effect that
- it has the intellectual property necessary to conduct its business;
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it has taken adequate steps to protect its intellectual property;
- it is not conducting its business in a manner that infringes the intellectual property of others; and
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no one else is infringing the company's intellectual property.
Generally speaking, a new company that still has to develop or acquire significant intellectual property before it can start selling products will not be able, nor should it be expected to, make representations as broad as those that might be expected of a later stage company that is already selling products that rely on the company's possession of adequate intellectual property rights.
One issue that often arises is whether the company makes the intellectual property representations "to its knowledge." Since some of the matters covered by the representations are unknowable (such as matters involving infringement), the presence or absence of a knowledge qualification is generally viewed as a matter of risk allocation as between the company and the investors.
