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License to Merge: Precautions for Preserving IP License Rights

By Scott B. Schwartz and Justin B. Wineburgh
October 29, 2008

Despite a long history of case law relating to mergers, one area remains unclear, especially in the entertainment industry: the effect of mergers on intellectual property licensing agreements. Recent case law contributes to this uncertainty and suggests that certain precautions may be necessary to preserve valuable IP licensing rights. Importantly, entertainment companies should anticipate these issues from the outset and careful consideration should be given when first negotiating a license agreement. Moreover, depending upon the terms of the IP license at issue, when contemplating a merger, companies should be particularly vigilant and may want to consider obtaining consent agreements to ensure that IP licenses will survive the merger.

Under some states' law, following a merger a surviving or resulting company generally succeeds by operation of law to all of the assets and liabilities of the merged entities. As such, when a merger is completed, a company does not have to assign its rights to contracts and other assets to the new or surviving company ' such rights simply transfer automatically. The ability to have such assets transfer automatically by operation of law is often desirable, particularly because license agreements frequently require the consent of the other party before a transfer or assignment of the license may occur.

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