For these businesses, technology can serve a range of functions, from acting as an enabler of new drilling projects, to supporting more efficient and effective processes and improving health and safety.
It is little surprise then that a recent survey commissioned by Pinsent Masons, which identified a coming "surge" in company mergers and acquisitions in the oilfield services market, also revealed that the desire to access new technology is one of the main drivers of that consolidation.
IP risks
The inherent IP risks in buying companies predominantly for their technology are complex. Prospective buyers must therefore carry out robust due diligence to minimise the risks, protect IP and help inform decision making at a critical point in the purchase.
One of the issues acquiring companies have to understand when buying technology is who owns the technology and the IP rights in it, as well as reviewing what licensing arrangements the target company is committed to.
Patent registers and other public databases of registered IP rights can help businesses verify the true ownership of technology, as well as whether others have registered similar patents or whether such applications are pending. This desktop analysis can help businesses assess whether the technology they are buying is unique and protectable, or exploited, or about to be exploited, by rivals.
Putting a value on soft IP, such as unregistered software code or know-how, is more of a challenge. Often the ownership of soft IP is linked specifically to individual staff members. Acquiring companies will want oversight of the employment contracts at target companies to ensure that ownership of IP resides with the company and not employees.
An examination of existing licensing contracts that the target company has will also help acquiring businesses reassure themselves that IP ownership rights held by the target company are not shared with third parties, like consultants, university researchers or customers. This latter case is particularly relevant where a product has been developed on a bespoke basis. Small, innovative companies sometimes have the problem of not having a proper process of documenting ownership of their IP, particularly where they work with third parties.
Companies find it difficult, and expensive, to get former staff and third parties they have worked with to assign IP back to them. However, this is something that an acquiring business might insist on under the terms of a sale if contracts of employment did not ensure assignment of IP rights to the employer in the first place.
Get your IP in order
If target companies have not got their IP in order when they come to sell, and the buyer identifies a weakness in terms of ownership or assignment, then it can have a knock-on impact on the sale price, especially where the main asset being acquired is IP or technology.
Companies find it difficult, and expensive, to get former staff and third parties they have worked with to assign IP back to them.
Technology and IP rights can confer such a competitive advantage that they are often the subject of legal action. Acquiring companies will want to review court records, or annual reports or regulatory filings that target companies publish, to get an overview of ongoing litigations target companies are involved in, and particularly those concerning the validity of important IP rights and actions of infringement.
Representations and warranties can be inserted into sale agreements to account for unknown risks. These indemnities allow acquiring companies the ability to reclaim some of the value they associated with technology at the time of sale if there is loss in that value post-sale, for example because IP rights in the technology are later challenged and successfully revoked.
Our research outlines an opportunity for ambitious and acquisitive oilfield services business, with oil price volatility expected to drive this wave of tech consolidation in the next 12 months. While now is indeed the time to diversify and secure that innovative technology bolt-on, addressing fundamental IP unknowns at the very start of the process is critical to a successful and lucrative acquisition.
Andrew Hornigold is head of client relationships for advanced manufacturing and technology at law firm Pinsent Masons
