Now more than ever, the automotive industry is also one of the biggest technology industries. This means that during an M&A scenario, the importance of understanding and assessing the target company’s automotive patents and intellectual property (IP) cannot be understated. Patented innovations are important because they can be used to the benefit of the company that controls them, while preventing others from using that technology. Innovative automotive technology IP can greatly enhance a company’s competitiveness.
At the Dave Cantin Group, our M&A team has decades of total experience and a diverse range of backgrounds in all matters related to automotive as well as related dealership-based industries like motorcycles, heavy trucks, recreational vehicles, and powersports. Their combined knowledge and expertise gives us the perspective needed to advise our clients on the moves they’ll need to make as automotive technology changes and the transition to vehicle electrification rolls on. Contact us now to speak to one of our M&A specialists or read on to learn more about the role of technology patents in automotive mergers and acquisitions.
IP Due Diligence
A complete understanding of the quality and scope of the target company’s IP assets is critical.
Conducting a thorough IP due diligence process is essential when planning a merger, acquisition, or partnership. This investigative process involves assessing the target’s intellectual property portfolio, including all of its patents in automotive, trademarks, copyrights, and trade secrets. After going through the IP due diligence process, both sides should have a clear understanding of the value of the target company’s automotive technology IP, as well as its enforceability and its future potential in the marketplace.
Patent Portfolio Analysis
A thorough and detailed analysis of the patent portfolio of an acquisition target can reveal the strengths and weaknesses of its proprietary automotive technology IP. A strong patent portfolio that has been managed well can add a great deal of value to a transaction while providing useful insights into the company. By ascertaining the number of patents, their geographic coverage, and the nature of the innovations they protect, the market value of the company’s intellectual property in automotive can be estimated.
Innovation Strategy
During the M&A process, both companies involved must establish a clear innovation strategy that aligns with their combined business objectives. This includes assessing market needs, identifying appropriate areas of technological focus, and determining the desired IP outcomes. The technological capabilities of both companies should ideally be aligned so that they create a competitive and innovative advantage for the combined firm.
Patent Filing and Maintenance
To retain and fully benefit from the IP gained through a merger, acquisition, or partnership, the process of patent filing, maintenance, and renewal is crucial. This requires ensuring patents are properly maintained, staying up to date with filing deadlines, and assessing whether any patents should be abandoned. Failure to maintain your patents in automotive will result in the lapsing of the patent protection, with the rights provided by the patent no longer being enforceable.
Freedom to Operate (FTO)
It is vital to perform an FTO analysis to ensure that a company’s products and services do not infringe on any existing patents that are held by other entities. This may indicate the need to conduct comprehensive patent searches along with an assessment of any risks of patent infringement. Keep in mind that potentially infringing patents in automotive may be specific to certain territories and not others, that they are of limited duration, and that they are limited as to their scope. You may also wish to consider purchasing a competitor’s patent, licensing it, cross-licensing it, inventing around it, or even using a patent pool to gain access to a specific IP.
Patent Enforcement and Litigation
Another critical topic involves understanding when and how to enforce patents in automotive through litigation or other means. Patent enforcement has seen increased rights for patent-holders in recent history, with a tripling of the number of lawsuits involving patents. The cost of these lawsuits over the past thirty years has been estimated at over $300 billion. The process of patent enforcement and litigation includes an evaluation of the potential costs, benefits, and risks associated with patent-related litigation going forward.
Licensing and Collaboration
The companies involved may wish to consider the licensing of their automotive technology IP or perhaps collaborations with other companies that involve the sharing of IP. This can be an excellent way to get around the restrictions created by overlapping IP rights that create innovation-stifling “patent thickets.” Patent pools, which were common in the early 20th century but were seen less favorably by the middle of that century, are making a comeback. There can be both reduced costs and gains in efficiency from this team approach. Some aspects of this topic include structuring licensing agreements, determining royalty rates, and managing IP in joint ventures.
IP Valuation
The precise valuation of IP assets can be complex, but it is necessary for financial reporting, transaction negotiations, and IP monetization. Methods such as cost-based, market-based, and income-based valuation, may be considered. The differences between these methods are as follows:
- Cost-based valuation: Establishes an IP asset’s value through calculation of the cost of an identical or similar asset.
- Market-based valuation: Based on a comparison of the price actually paid for rights to an IP asset that is similar.
- Income-based valuation: Bases the value of an IP asset on the amount of income it is anticipated to generate, adjusted to its current value. This is the most common method of IP valuation.
Protecting Trade Secrets
Trade secrets are a key type of intellectual property, especially in industries like automotive that are highly technology-driven. By their nature, trade secrets are not patented, so companies must have extremely robust security measures in place to protect their trade secrets and ensure their confidentiality on an ongoing basis. This can include the use of both non-disclosure agreements (NDAs) and non-compete agreements (NCAs) as protective strategies.
IP and Data Security
Technology-based companies frequently deal with very sensitive data. This means that securing both IP and customer data is a critical topic. Companies must have solid strategies in the areas of cybersecurity, data encryption, and compliance with all applicable data protection regulations. Data protection measures should be applied not only to external threats, but also to those posed by employees, vendors, and even customers.
Global IP Strategy
If the new combined entity will be operating in multiple countries, a comprehensive global IP strategy will be required. Aspects of this include international patent filings, harmonizing IP protection across jurisdictions, and addressing legal and cultural differences within each market area. You will want to select a strategy that provides maximum protection at a realistic cost. This involves identification of the IP assets that need the most protection, protecting that IP, and enforcing those rights if they are infringed upon in these countries.
Emerging Technologies
Today’s rapid advancements in emerging technologies such as electric and fully autonomous vehicles, automotive software, artificial intelligence (AI), blockchain, nanotechnology, the internet of things (IoT), and biotechnology can raise unique IP challenges. A full understanding of the IP landscape and legal considerations in these areas as they apply to the company’s intellectual property in automotive is essential. The legal guidelines applying to IP need to adapt to these new technologies, so that innovation can be encouraged while intellectual property rights remain protected.
IP in Open Source and Collaborative Environments
Companies may participate in open source automotive software communities and collaborative development situations. Properly managing the company’s IP within these contexts involves a complete understanding of open source licenses, IP sharing, and contributor agreements. A balance must be achieved which protects the IP of the creator while encouraging the collaboration required to develop new automotive software products based on that IP.
IP and Competitive Analysis
To stay competitive, you must continuously monitor the IP landscape in the automotive industry. This process involves tracking the IP activities of your competitors through their patent filings and documents, exploring opportunities for IP expansion through licensing and other means, and identifying any potential threats to the company’s IP – such as when a competitor cites your patent in connection with a new development of theirs.
IP Policy and Governance
The establishment of clear IP policies as well as governance frameworks within your combined organization will ensure that the company’s IP assets are properly managed and protected. Doing this requires setting guidelines not only for employees, but also for the inventors and collaborators who will be accessing your IP. Top management should be involved in setting up solid policies that strategically and legally support the complexities of the new entity’s IP.
DCG Understands your Automotive Technology IP Needs
Careful consideration of all these IP-related factors is crucial as you pursue M&A activities within the automotive space. At the Dave Cantin Group, we fully understand what it takes to be successful in this endeavor. We are your trusted partner in pursuing automotive M&A deals involving automotive technology IP and patents. DCG is composed of financial and automotive specialists who successfully bring together both sides of the transaction, negotiating the best possible outcome for each party.
DCG’s track record in connecting businesses and facilitating deals that drive growth and innovation truly speaks for itself. You can benefit from partnering with the Dave Cantin Group to navigate the complexities of automotive M&A – contact us now to get started on your next successful M&A move and help secure your legacy.