What happens to Intellectual Property Rights when a company becomes insolvent?

Intellectual property (IP) is a complex asset class that requires specialist valuation, but also one that can add considerable value to a company in insolvency. In fact, the total value of a company’s intellectual property portfolio can be a determining factor in the eventual outcome of their insolvency event.

Whether the business is rescued, sold on as a going concern, or the sale of IP provides a significant boost to creditor returns on liquidation, intellectual property rights are a key issue for insolvency practitioners to deal with. 

The main forms of intellectual property are trademarks, patents, design rights and copyright. Other forms can include the rights to databases, domain names and website content, research and development, and confidential information.  

What happens to patents?

The ownership of any patents will need to be verified – also whether they are pending or have been granted - when establishing the potential value of this type of intellectual property.

Patents provide protection for an invention or innovation for up to 20 years, and therefore any that have recently been added to a company’s IP portfolio may have greater value than older patents. This is assuming the required renewal fees have been paid.

If the patent(s) has not been renewed and the costs of this process are not likely to exceed the proceeds of sale, the insolvency practitioner may decide to apply for a patent’s restoration so that it can be sold on.

How are trademarks affected?

A company’s trademark is closely aligned with its brand, and if registered can form a high-value part of their intellectual property ownership. A significant issue with trademarks, however, is their propensity to drop in value alongside the company’s slide into financial difficulty.

If a pre-pack administration procedure is chosen as the route out of insolvency, value of the company’s trademarks may be protected. This is because the quick sale that characterises this type of administration minimises bad publicity, and potentially preserves consumers’ high regard of the company.  

Should applications for trademark registration be pending, the value of a speedy sale would need to be measured against the potentially higher worth of the intellectual property when the registration process has been completed.

How is copyright impacted?

It is not possible to register copyright as it is with patents and trademarks, and this fact alone can make it difficult for ownership to be established beyond doubt.

Copyright is intended to protect the originator of creative works, including literature, original art, computer programmes, film recordings and broadcasts, among many others. It ensures that works are not copied at random, and can result in high value assets being available for sale in insolvency.

What happens to design rights?

If registered, design rights for commercial purposes remain in place for a period of 25 years and can form a high value part of an insolvent company’s IP portfolio. The UK Intellectual Property Office (IPO) maintains the design right registers.

Database and domain name rights, along with other forms of intellectual property could offer significant value to a company in distress, but it is crucial to be able to unequivocally assign ownership.

If the company is deemed viable in the long-term and it is believed it could return to profitability, the insolvency practitioner may decide that appropriate existing intellectual property should be licensed in order to bring in a regular income for the company.

Begbies Traynor specialise in business rescue and recovery. We can advise on the potential value of your intellectual property portfolio, or any other aspect of insolvency, and offer a confidential same-day consultation free-of-charge.