Legal risks in equity investment by means of patent rights

Equity investment by means of patented technology has become a more common business activity nowadays, and given rise to legal disputes as a result. For example, if an investor has not expressly agreed with a company on the ownership, transfer and other matters related to a patent, whether the company has the right to transfer the patent to a third party can easily lead to disputes. This article explores relevant legal risks involved.

Scenario 1: an investor injects a patented technology into a company as an equity investment, but it has not made changes to the bibliographic description. In this case, although the patentee recorded at the competent patent registry is the investor, the real patentee is the company. This situation is extremely unfavourable to the company because it is likely to bring legal risks against it. Usually, if the company is founded by the investor, the investor, as the legal representative or actual controller of the company, has interests consistent with those of the company, and the company is exposed to very low risk.

Legal flaws

In practice, since the real patentee is separated from the actual holder of patent rights, it is still able to instruct the investor to transfer or license the patent in the interest of the company even after the licence of the company is cancelled, revoked, etc. Of course, this move has legal flaws because the investor has not fulfilled its obligations for the registration of its capital contribution.