Intellectual Property
Intellectual property remediation during IPO preparation: reviewing rights, contracts, rules, and practices
When intellectual property remediation is requested during IPO preparation, begin by identifying the concern behind the request. The appropriate response differs depending on whether the issue is the company's authority to use a right, continuity of a contract, transaction terms, or past handling of rights. This article addresses ownership, license agreements, internal rules, and actual practices. It explains what to verify and remedy, whose agreement and which internal decisions are needed, and which materials can explain the status of the response.
Reviewed by Keishi Yoshikawa, Attorney at Law and Patent Attorney (Dai-Ichi Tokyo Bar Association)
Contents
1 The source of the request and the underlying concern
If the company is told to put its intellectual property affairs in order, first check the original wording. Identify who raised the issue, in which process, and what the concern is.
During IPO preparation, the lead managing securities firm advises on capital policy and internal organizational arrangements and supports the procedural work. Separately, it conducts an underwriting review of the company for a public offering, secondary offering, or similar transaction. Do not treat acceptance by the advisory department as equivalent to a conclusion in the underwriting review. Confirm the purpose of the request and the stage of response expected with the person who raised it.
For an issue raised by the audit firm, establish whether it arises from verification in the financial statement audit or from guidance and advice during preparation. The company answers questions raised in the stock exchange's listing examination on the basis of supporting materials. Confirm the point of contact with the lead managing securities firm and responsibility for drafting responses, but recognize that agreement with that firm does not by itself determine the exchange's assessment.
This does not mean presenting different facts to different recipients. Keep the facts consistent and prepare the explanation needed for each recipient's purpose.
Company-wide remediation and the allocation of roles among professional advisers are addressed in IPO support and back-office establishment services.
2 Ownership and licenses for rights needed in the core business
If the core business depends on patents or trademarks registered in someone else's name, check the rights concerned and their acquisition history, the scope of the company's permitted use, the contract term and termination conditions, and the extent of the business's dependence on those rights. The fact that the company is not the right holder need not itself be treated as a deficiency.
If continuity of use cannot be established, consider the necessary response, such as acquiring the rights or entering into or amending a license agreement. For an assignment of patent or trademark rights, allow time for approvals on the right holder's side, agreement on consideration, and registration of the transfer, upon which it takes effect. If a contract is the solution, address not only its term and termination conditions but also exclusivity, who will respond to infringement and how, responsibility and costs for maintaining the rights, and the ability to make necessary disclosures.
If the other party is a university, identify the negotiating contact and the person authorized to decide the contract terms. If the university has policies on assignments or licensing terms, negotiations will need to take place within those constraints. Also check any necessary co-owner consent and whether it has been obtained. Where assignment is difficult, the focus becomes which terms can be secured by contract. A statutory exclusive patent license should not be treated as the only answer. Its creation also requires registration and is not a means of shortening the timetable.
If the other party is the founder personally or an asset-holding company, distinguish the individual from the legal entity. Identify the contracting party and who has authority to represent it. The reasonableness of transaction terms and the need for conflict-of-interest approval depend on the specific relationship and the company's governance structure. The founder's personal agreement should not be treated as completing the asset-holding company's decision-making process.
If the company has already received an allegation of breach or a termination notice, also see the guidance on intellectual property and license disputes.
3 Past handling of rights and future rules and practices
Adopting new employee invention rules does not automatically resolve ownership of past inventions or issues concerning remuneration and benefits.
For acquisition of rights, check when the invention was completed, the inventor's affiliation and duties at the time, the applicable rules or contract, and when the company acquired the rights. A chronology based solely on filing dates may not reflect the relevant events. Distinguish initial vesting in the company from acquisition by succession or assignment, and verify the basis for each. If the company has not acquired the rights, consider whether acquisition is needed, whether existing rules or contracts permit it, and whether a new agreement is necessary. Missing records of an acquisition that has already occurred call for a different response from a situation in which the rights have not yet passed to the company.
For remuneration and benefits, check the applicable law and the arrangements in effect at the time. Examine separately consultation when setting standards, disclosure of the standards, and hearing the person's views on an individual determination. A procedure written into the rules is different from one actually carried out. Nor does the absence of a prescribed form alone establish that no procedure took place. Check payment and benefit-award records as well.
For future operation, assign responsibility for invention disclosures, acquisition of rights, benefit determinations, and handling views and objections. In addition to approval of the rules, check whether communication, receipt of disclosures, and decision-making are actually taking place. At the same time, decide how and to whom the results of investigations and assessments concerning third-party rights, and warning letters, are to be reported and who will make the decisions.
The concern and the response required
Organize the necessary response and supporting materials according to the issue raised. Examples follow.
| Underlying concern | Remediation options and necessary agreements | Materials demonstrating implementation | Outstanding matters affecting the timetable |
|---|---|---|---|
| Authority to use core technology or continuity of use cannot be established. | Verify the basis for use. Where needed, agree on assignment or contractual amendments with right holders, co-owners, or others. | Executed agreements, consents, and records of necessary registrations. | Approval by the right holder, agreement on terms, and effectiveness of the arrangements. |
| Terms or approvals for transactions with the founder or related parties remain unresolved. | Review the need for the transaction and its terms, obtain necessary corporate approvals, and negotiate terms with the other party. | Materials evaluating the terms, approval records, and agreements. | Reasonableness of the terms and identification of approving bodies and procedures. |
| Acquisition of rights in past employee inventions cannot be established. | Verify the basis of acquisition and, if rights have not been acquired, consider an agreement with the right holder. | Rules and contracts in effect at the time, invention records, and evidence of acquisition or succession. | Identifying inventors and relevant dates and coordinating with former employees or others. |
| Treatment of remuneration or benefits for past inventions has not been verified. | Check the applicable law and arrangements and consider necessary payments or awards of benefits. | Records of setting and communicating standards, individual determinations, and payments or benefit awards. | Historical records, the views of the persons concerned, and the extent of unresolved matters. |
| Findings concerning third-party rights and warnings are not leading to decisions. | Have legal, development, and other relevant teams establish when checks are needed, reporting channels, and decision-making authority. | Rules and procedures and actual reporting and decision records. | Assignment of responsibilities and authority and review of records after implementation begins. |
These materials are examples. Collecting them does not by itself establish that the concern has been resolved. Check their content, legal effect, and actual operation. A single matter may fall within more than one row.
4 The timetable and an inability to meet it
Track progress and completion separately for contract execution, legal effectiveness, verification of actual operation, and explanations for the examination. For assignments of patent or trademark rights, allow time through registration of the transfer. For internal rules, allow the time needed to verify and record their operation in the relevant activities.
If the deadline cannot be met, it is inappropriate to assume that an alternative solution will necessarily be available. Identify unverified facts, agreements not yet concluded, and business difficulties that will remain in the meantime, and then consider the response and its implications for the listing timetable.
Remediation should begin with the source of the request and its underlying concern, and extend to identifying whose agreement and which internal decisions are needed and what materials will explain the response. We advise on remediation approaches tailored to the issues raised, agreements with right holders, co-owners, founders, and others, and revisions to employee invention rules and their operation.
For our intellectual property practice, please see our guide to intellectual property.
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