An in-depth analysis of intellectual property issues in the model of mergers and acquisitions -- starting from the dispute between Sanlian Group and Gome's "Sanlian" trademark.

Abstract: Mergers and acquisitions have become an effective way to combine strong forces or rapidly expand their competitiveness and influence. However, in the process of mergers and acquisitions, they often only pay attention to physical assets or equity itself, while they do not pay enough attention to intellectual property rights that affect the core competitiveness of enterprises, or do not know enough about the characteristics of intellectual property rights. They enter various misunderstandings or traps in mergers and acquisitions, which directly affect the effect of mergers and acquisitions and even lead to failures, this paper intends to analyze the common problems of intellectual property rights in the M & A model and M & A model.

Keywords: M & A; intellectual property; Sanlian; Gome; mode

Mergers and acquisitions in recent years, such as the auto industry domestic restructuring overseas mergers and acquisitions in full bloom. Geely acquires Volvo; Tengzhong Heavy Industries acquires Hummer; GAC restructures Geo Automobile; Changan and Peugeot Citroen form a joint venture; China Pacific Century Automotive Systems Co., Ltd. has acquired GM's Nexteer steering system business unit, creating the largest merger and acquisition of Sino-US auto parts cooperation. There are also frequent mergers and acquisitions in other industries. Wahaha encountered Danone's forced merger and acquisition, which triggered the dispute of "Da (Neng) Eva (Haha)". There is also a trademark dispute in Gome's reorganization Sanlian Trading Co., Ltd., which is nearby. These cases let us see that intellectual property issues play a pivotal role in the process of corporate mergers and acquisitions, and even related to the success or failure of the merger itself. We will start with the "Sanlian" trademark dispute arising from Gome's merger and acquisition of Sanlian Trading Company.

1. Gome's Trademark Dispute with Sanlian Group in the Process of Restructuring Sanlian Trading Company

Shandong Sanlian Group Co., Ltd. (hereinafter referred to as "Sanlian Group") was founded in 1985. It once had a strong competitive advantage in Shandong and even the whole country, and became the leader of China's modern service industry. From 2000 to 2004, Sanlian Trading Company ranked first in the country's home appliance chain stores for three consecutive years, and once enjoyed the reputation of "China's first home appliance store. In 2004, it was included in the ranks of 20 large-scale circulation enterprises supported by the state. However, due to business strategy problems, the controlling shareholder of Sanlian Trading Company turned to Gome, but a major issue was ignored in the process of Gome's equity merger, that is, the "Sanlian" trademark. The owner of the "Sanlian" trademark is not Sanlian Trading Company but Sanlian Group, which on the surface seems to have no effect on the merger and acquisition, but then Sanlian Group successively used the "Sanlian" trademark to open Sanlian household appliances on the north side of Sanlian Trading Company and in Shandong, which caused Gome to pay more attention to the ownership of the "Sanlian" after the reorganization. So Gome sued Sanlian Group through Sanlian Trading Company for free transfer of the "Sanlian" trademark.

Gome requested that the trademark be transferred to * ST Sanlian (600898) free of charge, saying that the signing of the trademark contract between the two parties is an indispensable part of the Sanlian Group's reorganization of Zheng Baiwen's package, and the signing of the trademark contract is a necessary condition for the reorganization. If the listed company cannot use the Sanlian trademark, the company's asset integrity and business continuity will face significant legal risks, and even fall into a serious goodwill crisis, so Sanlian Trading Company requires Sanlian Group to transfer the "Sanlian" trademark to * ST Sanlian free of charge. Gome said that after Gome bid for the shares of * ST Sanlian and even took over * ST Sanlian, "Sanlian Group opened stores in Shandong one after another, which is the competition among peers. It is not Gome but Sanlian Group that harms the interests of minority shareholders"[1]. However, Sanlian Group believes that the "Sanlian" trademark is related to the survival of Sanlian Group and its 118 franchise stores covering Shandong and surrounding areas, as well as the jobs of hundreds of thousands of employees, and will never give up the Sanlian trademark.

It can be seen that in the process of reorganization and merger, Gome entered the whirlpool of litigation because it ignored the "Sanlian" trademark issue. Although it completed the equity reorganization and merger, it could not prevent Sanlian Group from continuing to use the "Sanlian" trademark to open home appliance chain stores. The purpose of the merger was not fully realized. In this merger, the issue of intellectual property rights became the core issue of the dispute between the two parties. This case is enough to remind us that mergers and acquisitions are not as simple as equity or asset purchases, and that we must pay attention to the intellectual property issues involved in the merger and acquisition process.

Analysis of Merger and Acquisition Mode of 2. Enterprises

Meaning of (I) M & A

Enterprises through internal expansion may be a slow and uncertain process, through mergers and acquisitions development is much faster, can quickly achieve capital concentration, economic scale expansion, competitiveness, operational efficiency and other effects.

Merger and acquisition refers to merger (Merger) and acquisition (Acquisition) collectively; merger, that is, the new merger or absorption merger from the legal point of view; acquisition is that all or a part of the rights subject of the enterprise obtains the corresponding benefit by transferring the control right of the enterprise, and the other subject obtains the control right by paying a certain price.

Classification of Mergers and Acquisitions of (II) Enterprises

According to the different functions and industrial organization characteristics of mergers and acquisitions, mergers and acquisitions can be divided into three basic types:

1, horizontal mergers and acquisitions, the basic feature of horizontal mergers and acquisitions is the horizontal integration of enterprises in the same industry field. There is often direct competition between enterprises in horizontal mergers and acquisitions, and such mergers and acquisitions are often subject to monopoly review in the host country. For example, the Ministry of Commerce of my country's "Measures for the Review of Concentration of Operators" and "Interim Provisions on the Implementation of the Divestiture of Concentrated Assets or Business of Operators." Global industry restructurings are mostly strong alliances of this type, such as Daimler-Benz, Boeing-McDonnell Douglas, and BAIC's acquisition of Saab.

2, vertical mergers and acquisitions, vertical mergers and acquisitions are in the same industry between the upstream and downstream mergers and acquisitions. The enterprises in which such mergers and acquisitions occur are not directly competitive, but often belong to upstream and downstream enterprises of the same or similar industries, and the purpose of such mergers and acquisitions is often to reduce the costs of upstream and downstream enterprises and expand the influence of the industrial chain. For example, Microsoft and Hotmail mergers and acquisitions, Google and Android mergers and acquisitions.

3, mixed mergers and acquisitions, mixed mergers and acquisitions is not a simple mix of horizontal mergers and acquisitions or vertical mergers and acquisitions, but refers to the large span of different industries between enterprises. For example, under the enterprise group strategy, seek scope economy, realize the east is not bright in the west to spread the risk.

General pattern of mergers and acquisitions of (III) enterprises

No matter how complex the type of M & A is and how detailed the classification is, M & A always has to be implemented on a certain amount of property, so there is a general pattern of M & A, which we can divide into asset M & A pattern and equity M & A pattern according to the object of M & A. The subject of the equity acquisition is the shareholders of the acquiring company and the target company, and the subject of the acquisition transaction is the equity of the target company; the subject of the asset acquisition is the acquiring company and the target company, and the subject of the acquisition transaction is the assets of the target company. From the specific operational level, equity acquisition can be subdivided into three modes: equity transfer, capital increase and share expansion, equity transfer and capital increase and share expansion.

This paper only analyzes the intellectual property issues that should be paid attention to under the different modes of asset mergers and acquisitions and equity mergers and acquisitions, so what intellectual property issues exist in the enterprise merger and acquisition mode?

Analysis of the Common Problems of Intellectual Property Rights in the Merger and Acquisition Mode of 3. Enterprises

Does the acquisition of the company's equity mean the acquisition of all the intellectual property rights used by the company? Generally speaking, a successful equity acquisition should be able to control all the intellectual property rights of the target company, but not necessarily every acquisition in essence. The acquisition of assets seems to be a direct acquisition of intellectual property itself, the risk seems to be small, but in fact there is the same problem, the reason is that intellectual property is intangible, and tangible property is different from the actual possession and control, often there will be a number of complex situations, the analysis is as follows:

1. The exclusive license of intellectual property rights affects the acquisition and use of the intellectual property rights after the merger.

There are generally three types of intellectual property licensing: ordinary licensing, exclusive licensing, and exclusive licensing. If the acquired target company allows the company's intellectual property to be used by a third party in the form of an exclusive license, the target company itself and any other party have no right to use it except the licensee. That is to say, although the merger and acquisition has been completed, the intellectual property itself has not been obtained. If the intellectual property is essential to the acquirer, then the merger is only a formal completion, and in essence the acquirer's purpose is defeated.

2. The target company acquires the use of intellectual property rights with conditions. Once the shareholders of the target company change or other conditions agreed upon by both parties appear, the right to use the intellectual property rights will be terminated, which will affect the possession and use of the intellectual property rights after the merger.

For example, in the dispute over the "Sanlian" trademark of Gome Sanlian Trading Company, Sanlian Group proposed that the premise of allowing Sanlian Trading Company to use the "Sanlian" trademark for a long time free of charge was that "Sanlian Group is the largest shareholder of Sanlian Trading Company". After Gome completed the acquisition, Sanlian Group believed that Gome had no right to use the trademark, let alone restrict Sanlian Group from using the trademark to open another store. The conditions attached to such licenses are contrary to the merger process, and the date of completion of the merger is the time when the conditions are realized, which is the inevitable consequence of the failure to conduct due diligence on intellectual property at the beginning of the merger.

3. Failure to pay the fees on time results in the loss of intellectual property rights, resulting in the acquisition of intellectual property rights without material significance.

Some rights in intellectual property rights are subject to maintenance fees, such as patent maintenance fees, trademark renewal fees, etc. If such fees are not paid on time, the exclusive rights of intellectual property rights will be lost. Therefore, the M & A process should not only look at the certificate proving the existence of the intellectual property itself, but also the proof of payment, which requires intellectual property professionals to do the corresponding work in the M & A due diligence. The loss of intellectual property rights simply because the fees are not paid in time will be a great loss for the merger.

4, ignore the intellectual property protection period is about to expire, mergers and acquisitions resulting in the overvaluation of intellectual property rights.

Intellectual property rights are exclusive. In order to promote technological progress and protect competition, all intellectual property rights except trade secrets have a protection period. With the expiration of the protection period, the value of intellectual property rights should be gradually reduced due to the loss of monopoly status. Therefore, the protection period of intellectual property rights should be considered in the process of merger and acquisition, and the value of intellectual property rights of target companies should be evaluated accordingly to avoid overestimation of assets.

5. The intellectual property rights themselves are flawed, resulting in the evasion or invalidation of the property rights obtained after the merger and acquisition, and the "shrinkage" of the intellectual property rights ".

Incomplete claims will make the scope of patent protection too narrow, competitors can easily bypass the patent, through the study of the patent specification has been published, to find alternative methods, so that the economic value of the patent is lost." She suggested that when evaluating the patents of the acquired party, Chinese enterprises should especially consider the interpretation and provisions of the claims of the relevant foreign patents to determine whether there are weaknesses in one or more claims that will be used by third parties to circumvent the design.

6, attached to the intellectual property rights of others, and did not obtain cross-licensing, affecting the normal use after the merger.

In the merger and acquisition, it is necessary to examine whether the implementation of the intellectual property rights needs to obtain the core patent license of other enterprises, if the target company's patent is attached to the patent of others, there is the problem of obtaining the license of others, which will affect the realization of the target company's own intellectual property rights in the course of operation. Take Huali's acquisition of Philips as an example. Huali Group acquired the research and development department of Philips CDMA mobile communication chip business. However, Huali Group did not notice that although there is a cross-licensing agreement between Philips and Qualcomm on CDMA chips, both parties to the cross-disciplinary agreement promise not to disclose it to third parties. This promise will not change with the transfer of Philips CDMA research and development department. The existence of this agreement requires that as long as Huali develops and sells CDMA chips and terminal equipment, it is required to pay a technology license fee to Qualcomm. The acquisition of Huali Group can only obtain the technology of Philips CDMA2G, while the CDMA2000 core patent of 3G, one of the international standards, is still in the hands of Qualcomm, and the goal of acquiring key technologies has basically failed. This is a big taboo in mergers and acquisitions, especially for mergers and acquisitions of high-tech technology companies. There are connections and crossovers between technologies. A comprehensive and detailed investigation and understanding of the intellectual property rights of the target company must be made in advance to prevent mergers and acquisitions from failing.

7, cross-border mergers and acquisitions should pay attention to the different regional protection of intellectual property rights.

Intellectual property rights have regional characteristics, and different jurisdictions have different characteristics of intellectual property protection. If the law of the country where the intellectual property rights are located is ignored in cross-border mergers and acquisitions, there will be a great risk of intellectual property rights obtained from mergers and acquisitions. In the United States, for example, when determining whether the target company has intellectual property rights, it should be determined whether there are co-owners. Because under U.S. law, any intellectual property co-owner has the right to license or sell it to third parties and to donate it to the public without the consent of the other owners.[2]. This is different from the provisions of Chinese law, which stipulates that it may not be disposed of without the consent of the co-owner. These special circumstances in the regional protection of intellectual property rights lead to whether the purpose of the merger can be achieved and whether the target company is hidden.

8. Ignoring the characteristics of different types of intellectual property rights leads to self-digging traps and a dilemma.

In order to meet the needs of trademark retrieval, examination and management, some goods with common attributes are combined into a category, and all goods and services are divided into 45 categories to form a "classification table of goods and services for trademark registration". The corresponding trademarks are also divided into commodity trademarks and service trademarks, which belong to different categories. This gives rise to the problem of different trademarks arising from the registration of the same trademark sample in different categories. If we ignore the existence of such problems, then only one of the trademark exclusive rights may be obtained in the merger and acquisition, while the others are still in the hands of others, resulting in losses in the merger and acquisition. For example, "Hongjitang" trademark issues:

For more than 100 years, the business model of Hongjitang has gone through the front store and the back factory. The "store" responsible for sales has developed into the current "Hongjitang chain", while the "factory" responsible for pharmaceuticals has evolved into the current "Hongjitang Pharmaceutical". In this way, the "Hongjitang" trademark was used both in production and sales, and formed their own different systems. The friction between the two "Hongjitang" continued, resulting in litigation. The plaintiff "Hongjitang Pharmaceutical" believed that the "Hongjitang Chain" (Shandong Hongjitang Pharmaceutical Chain Co., Ltd.) used the Hongjitang name in the name of the enterprise, and used the Hongjitang logo and the history of the time-honored brand for product and business promotion, which misled the public and belonged to unfair competition, and asked the other party to stop this behavior. However, "Hongjitang Chain" has another statement: "Hongjitang Chain" was earlier than "Hongjitang Pharmaceutical" when it obtained the trademark registration of Hongjitang and the well-known trademark in China ". If this problem is discovered at the beginning of the merger and appropriate arrangements are made, it can be avoided to rise to litigation.

Preventive Measures of Intellectual Property Risk in 4. Mergers and Acquisitions

1, mergers and acquisitions should attach great importance to the role of due diligence, in due diligence to fulfill the duty of care, to find out the context of the development of mergers and acquisitions, and existing or will produce intellectual property rights.

2, do a good job of intellectual property analysis and prediction. Based on existing intellectual property rights, analyze and predict the possibility of intellectual property infringement and infringement or other conflicts, and make an analysis report on intellectual property rights.

3. Pay attention to the classification of intellectual property rights, distinguish different types of intellectual property rights, and pay attention to the characteristics of different types of intellectual property rights.

4. In the process of cross-border M & A, we should do a good job in the search of intellectual property rights in advance to avoid the failure of M & A due to the regional problems of intellectual property rights.

5, mergers and acquisitions should pay attention to the acquisition of intellectual property rights, whether the intellectual property itself, or the acquisition of exclusive license, exclusive, exclusive or ordinary license, fully assess the value of intellectual property itself, to provide reference for the evaluation of mergers and acquisitions.

6. Pay attention to the provision of M & A legal services in the process of M & A. The team should be composed of lawyers or other relevant personnel engaged in intellectual property professional, so as to provide appropriate professional guidance at any time and avoid the increase or even failure of M & A due to the neglect of intellectual property issues.

5. epilogue

As the core competitiveness of enterprises is reflected in the competition between technology and market influence, mergers and acquisitions of enterprises should also pay attention to the intellectual property issues that directly determine the market influence and technological competitiveness of enterprises. A perfectly successful merger must be a merger that attaches importance to intellectual property rights, and intellectual property rights are different from other property or property rights, and they are unique in terms of regionality, duration, and invisibility. Therefore, no matter what kind of M & A mode is adopted, the ownership of intellectual property rights should be confirmed in the process of M & A, and at the same time, professionals should evaluate and review the intellectual property rights to prevent falling into various intellectual property traps in M & A, so as to truly realize the purpose of M & A.

This article won the third prize of Jinan lawyer's business paper selection in 2011

[1] 23 September 2009Securities Times"Triple Trademark Case Trial Argument Contract Interpretation as Key"

[2] "Overseas M & A, Intellectual Property Due Diligence" by Liu Renhttp://www.cipnews.com.cn/