How Is Licensed IP from a University Affected During an Acquisition

If a startup company uses an exclusive licensed IP from a university, what usually happens if the company wants to get acquired by a larger company? Do large companies usually avoid acquiring a company with a licensed patent?

The question can be answered whether or not you have an exclusive license to the IP from a University, an Individual, or an Entity. We must first visit the terms of that license agreement to determine whether the agreement includes a Successors & Assigns clause. This clause states that if either party is acquired, the acquiring party is subject to the agreement just as if it were the original party to the agreement. It means that if someone were to acquire the licensor (e.g., the entity granting the license), then that acquiring entity would be required to honor the terms of the license. Similarly, it means that if someone were to acquire the licensee (e.g., you in this case), that the acquiring entity would be entitled to the same terms of the license.

In some instances, the Licensor writes in the agreement that the terms of the license should be renegotiated upon an acquisition of either the Licensor or the Licensee.

The next thing we should consider are the actually terms of the license and what it would mean to the entity acquiring inheriting the licensing agreement. If the entity subject to the license highly relies on the license agreement, then the acquiring entity will carefully scrutinize the terms.

For instance, when does the license expire? What happens when the license expires? Will the licensor be willing to renew the license to the acquiring entity? Are there any conflicts of interests between the licensor and the acquiring entity (do they want to do business with each other)? Will the licensee be able to provide his/her products/services without such license? Is it possible to design proprietary products/services to circumvent the license? How much of the company’s value/worth is associated with/relies on having the license? Can the acquiring party get such license themselves and thereby eliminate the need for your company altogether (exclusive licenses prevent this)?

In general, even large companies have many license agreements they are bound to themselves. They acknowledge that this is a normal part of business. However, if your company will collapse if such license agreement is not in place then it may be harder to be acquired.

If you are interested in more detail related to your situation it is best to speak with an attorney.

Yuri Eliezer heads the intellectual property practice group at Founders Legal. As an entrepreneur who saw the importance of early-stage patent protection, Yuri founded SmartUp®. Clients he has served include Microsoft, Cisco, Cox, AT&T, General Electric, the Georgia Institute of Technology, and Coca-Cola.