The oil market is not doing as well as it has in the past. If you look around, you’ll find lower oil prices, large mergers and dwindling jobs in the industry but one of the big reasons for this is something that most people don’t think about. Intellectual property is one of the large considerations behind some of these huge mergers. Here’s why.
For these businesses, technology
can serve a range of functions, from acting as an enabler of
new drilling projects, to supporting more efficient and
effective processes and improving health and safety.
It is little surprise then that a recent survey commissioned
by Pinsent Masons, which identified
a coming “surge” in company mergers and acquisitions in the
oilfield services market, also revealed that the
desire to access new technology is one of the main drivers of
The inherent IP risks in buying companies predominantly for
their technology are complex. Prospective buyers must therefore
carry out robust due diligence to minimise the risks, protect
IP and help inform decision making at a critical point in the
One of the issues acquiring companies have to understand
when buying technology is who owns the technology and the IP
rights in it, as well as reviewing what licensing arrangements
the target company is committed to.
Patent registers and other public databases of registered IP
rights can help businesses verify the true ownership of
technology, as well as whether others have registered similar
patents or whether such applications are pending. This desktop
analysis can help businesses assess whether the technology they
are buying is unique and protectable, or exploited, or about to
be exploited, by rivals.
Putting a value on soft IP, such as unregistered software
code or know-how, is more of a challenge. Often the ownership
of soft IP is linked specifically to individual staff members.
Acquiring companies will want oversight of the employment
contracts at target companies to ensure that ownership of IP
resides with the company and not employees.
An examination of existing licensing contracts that the
target company has will also help acquiring businesses reassure
themselves that IP ownership rights held by the target company
are not shared with third parties, like consultants, university
researchers or customers. This latter case is particularly
relevant where a product has been developed on a bespoke basis.
Small, innovative companies sometimes have the problem of not
having a proper process of documenting ownership of their IP,
particularly where they work with third parties.
Companies find it difficult, and expensive, to get former
staff and third parties they have worked with to assign IP back
to them. However, this is something that an acquiring business
might insist on under the terms of a sale if contracts of
employment did not ensure assignment of IP rights to the
employer in the first place.
Get your IP in order
If target companies have not got their IP in order when they
come to sell, and the buyer identifies a weakness in terms of
ownership or assignment, then it can have a knock-on impact on
the sale price, especially where the main asset being acquired
is IP or technology.
Companies find it difficult, and
expensive, to get former staff and third parties they have
worked with to assign IP back to them.
Technology and IP rights can confer such a competitive
advantage that they are often the subject of legal action.
Acquiring companies will want to review court records, or
annual reports or regulatory filings that target companies
publish, to get an overview of ongoing litigations target
companies are involved in, and particularly those concerning
the validity of important IP rights and actions of
Representations and warranties can be inserted into sale
agreements to account for unknown risks. These indemnities
allow acquiring companies the ability to reclaim some of the
value they associated with technology at the time of sale if
there is loss in that value post-sale, for example because IP
rights in the technology are later challenged and successfully
Our research outlines an opportunity for ambitious and
acquisitive oilfield services business, with oil price
volatility expected to drive this wave of tech consolidation in
the next 12 months. While now is indeed the time to diversify
and secure that innovative technology bolt-on, addressing
fundamental IP unknowns at the very start of the process is
critical to a successful and lucrative acquisition.
Andrew Hornigold is head of client relationships for
advanced manufacturing and technology at law firm Pinsent