Copyright risks in M&A transactions

Corporate acquisition is one method by which a company may secure and strengthen its intellectual property (IP) rights against its competitors to increase its market share. Corporate acquisition is generally divided into three types – corporate merger, equity acquisition and asset acquisition, which involves more complex IP issues.

During an acquisition, companies must keep in mind that copyrights have unique IP features that can give rise to legal risks. The Copyright Law specifies four moral rights, namely publication, attribution, integrity and revision rights. The Copyright Law also lists 12 economic rights, including those for reproduction, distribution, rental, and the catch-all “other rights”. Although these rights are listed in the Copyright Law, judicial debates on the meaning and application of these rights are not uncommon. Therefore, the acquisition agreement must expressly detail the rights involved to avoid any misunderstanding.

Copyright restrictions. As there are no regulatory procedures for approving or granting copyrights, the scope of rights protected can cause disputes. Furthermore, articles 22 and 23 of the Copyright Law, which regulate statutory licences and fair use, may limit the scope of copyrights. To meet the purposes of the transaction, the acquirer needs to identify the valid scope of work protected, and verify the scope of exercise for the IP rights being acquired.

Charles Feng is a partner with East & Concord Partners