This is not exactly a cheerful topic but nevertheless an important one, especially if your company has patents or has filed a patent application. It is important to take precautionary measures even if your company is financially sound. This will stop you from losing your patents in the unlikely event that your company does end up going into administration or liquidation. In this blog, I explain how you go about this.
The insolvency practitioner decides
When a company or one of its creditors applies for liquidation, the insolvency practitioner is given control over the insolvency assets and decides what is going to happen to them, including any patents. The insolvency practitioner's task consists of getting as much money out of the company as possible and minimising the damage caused. So if you fail to get your affairs in order in advance, the fate of your patents will be in the hands of the insolvency practitioner should your company go into administration or liquidation. If the patent rights are part of the insolvency assets, the insolvency practitioner will try to sell them, for example, together with other parts of the liquidated company.
No relaunch without a patent
Startups occasionally run out of money (temporarily) during the development phase of an innovation. This generally results in their company going into administration or liquidation. However this does not mean that their innovation is not worth pursuing. Via a relaunch, for example.
A relaunch with the same innovation is particularly attractive when the relaunching company also becomes the owner of the patents. This is why the insolvency practitioner will also want to have control over the patent rights. In the case of such a relaunch you will lose all control over the patent rights. As a result you will not automatically be allowed to continue with your own innovation. After all, another party has become the owner of the patent rights, which may be essential for bringing your innovation to market.
The solution
You can avoid losing control over your patent or patent application by making sure that these come under a different private limited company to the operating company that could be liquidated. Technically then the insolvency practitioner will not have any control over them.
It is important to get this right from a legal perspective. There needs to be a valid agreement in place to set up the patent in another private limited company or to transfer it to another private limited company. It is also important to arrange a licence for the operating company so that they can continue to use the innovation. The better you arrange things, the less likely the insolvency practitioner is to get control over the patents.
You can't insure a burning house, so it is important to make the necessary arrangements in advance. It is too late to transfer patents to another private limited company when liquidation is already on the cards. You should arrange this as soon as you file a patent application or are granted a patent. Even if everything looks financially rosy.
Costs continue
If your patent rights do end up in a liquidation, new investments in the form of renewal fees, for instance, will still need to be made in the patents and patent applications. If you fail to do so, the patent rights may expire. An insolvency practitioner is often reluctant to make such new investments. So it is important that the insolvency practitioner recognises the value of a patent.
Fortunately, money is often released to continue the process so that patent rights are not lost. Still, not every insolvency practitioner is equally experienced in dealing with patents and patent applications. So make sure you seek help from a Patent Attorney as soon as there are any signs of financial difficulties. But...after reading this blog, I presume you will have protected your patents well before then.
If you want any advice about patents and protecting them, please feel free to contact me. I would be happy to share my thoughts on this with you.
