It's not a cheerful topic, but it is an important one, especially if your company has patents or has filed a patent application. Take precautions now, even if your company is financially healthy. This will stop you from losing your patents if your company ever goes into administration or liquidation. In this blog, I explain how.
The insolvency practitioner decides
When a company or one of its creditors applies for liquidation, the insolvency practitioner takes control of the company's assets and decides what is going to happen to them, including any patents. Their job is to raise as much money as possible for creditors and limit the damage. 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 business.
No relaunch without a patent
Startups sometimes run out of money while they are still developing their innovation. This can push the company into administration or liquidation. That doesn't mean the innovation isn't worth pursuing, for example through a relaunch.
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 want control of the patent rights too. 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. Another party now owns the patent rights, and you may need them to bring your innovation to market.
The solution
You can avoid losing control over your patent or patent application by holding them in a separate company, not in the operating company that could be liquidated. In principle, the insolvency practitioner then has no control over them.
It is important to get this right from a legal perspective. There needs to be a valid agreement to file the patent in the name of another company or transfer it there. It is also important to arrange a licence for the operating company so that it 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.
The costs don't stop
If your patent rights do end up in a liquidation, you still need to pay renewal fees and other costs to keep the patents and applications alive. If you fail to do so, the patent rights may lapse. 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, funds are often made available to keep the patents alive. 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 at the first sign of financial difficulty. But after reading this blog, I hope you'll have protected your patents long before then.
If you want any advice about patents and protecting them, please feel free to contact us.
