What Happens to Intellectual Property During Liquidation?
When a company enters liquidation, its intellectual property (IP) assets, such as patents, trademarks, designs, and copyrights, become part of the company’s estate, which is distributed to creditors.
The insolvency practitioner (IP) responsible for overseeing the liquidation process will evaluate the value of these IP assets and decide whether to sell them to generate funds for the liquidation. This will involve engaging specialist IP valuers to help assess the value and market potential of these assets.
If the IP assets are deemed valuable, the liquidator will seek to realise their value through private sales or auctions to interested parties. In some cases, the liquidator may assign the rights to the IP to a third party or a creditor as part of a debt settlement.
However, if the IP assets are determined to have little or no value, or if the cost of maintaining and selling them outweighs the potential benefits, the liquidator may choose to abandon them.
How is IP Valued in Insolvency?
Valuing IP during insolvency involves assessing the potential financial returns these assets can generate. The primary methods include the market approach, which compares the asset to similar IP transactions, the income approach, which estimates the future cash flows the IP can produce, and the cost approach, which calculates the expense to recreate or replace the IP.
Registered assets, such as patents and trademarks, typically have higher value due to enforceability. The commercial potential of the IP, including market position and licensing opportunities, also plays a significant role. Technological relevance, including the level of innovation and risk of obsolescence, must be considered. Additionally, the broader economic environment and industry trends can impact demand and value.
Finally, the IP’s litigation history and enforceability can either enhance or diminish its perceived value. IP, with a proven track record of successful enforcement, is generally valued higher, while ongoing legal disputes can lower its attractiveness to potential buyers.
Registerable Rights
Registerable IP rights, such as patents, trademarks, and designs, are typically more valuable and easier to sell as they provide clear legal ownership that can be transferred to the buyer.
Patents
Patents provide exclusive rights to inventions for a period of 20 years. The decision of whether to sell or license a patent will depend on factors such as the patent’s scope, the remaining duration of the patent term, and the market demand for the invention.
Trademarks
Trademarks are valuable assets that identify and distinguish a company’s goods or services. During liquidation, the IP may be sold to a third party who wishes to acquire the trademark rights or to a competitor who wants to prevent the trademark from being lost.
Designs
The decision of whether to sell or retain a design will depend on factors such as the originality and distinctiveness of the design, the market demand for products with similar designs, and the overall financial situation of the company.
Unregistered Rights
Unregistered IP rights, like copyright and trade secrets, can be more challenging to value and sell, as their ownership may be harder to prove and transfer, but they can still hold significant value depending on the nature of the IP and its potential market.
Copyright
Copyright protects original literary, dramatic, musical, and artistic works. During liquidation, the IP may be sold to a third party who wishes to exploit the copyright, such as a publisher or film producer. The decision of whether to sell or retain a copyright will depend on factors such as the value of the copyright-protected works, the potential licensing opportunities, and the overall financial situation of the company.
Trade Secrets
Trade secrets are a type of unregistered IP that includes formulas, practices, processes, designs, instruments, or a compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors. During liquidation, the handling of trade secrets must be carefully managed to preserve their confidentiality and value.
Need Advice?
If you are considering liquidating and would like more information on valuing your intellectual property, contact Company Debt today. We provide free, confidential advice on company debt and business recovery solutions to help resolve your situation quickly and painlessly. Call 0800 074 6757.
FAQs on Intellectual Property and Liquidation
Can I Buy Intellectual Property from a Company in Liquidation?
Yes, intellectual property (IP) from a company in liquidation can be purchased. Interested buyers should contact the insolvency practitioner managing the liquidation to express interest and negotiate a purchase.
What Happens to Unsold IP When Liquidation Ends?
Unsold IP at the end of liquidation may be abandoned by the insolvency practitioner if it has no sale value or if the cost of maintaining the rights exceeds its potential recovery value.
