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IP Fly in the Deal Ointment?

May 11

While the happy evidence that M&A transactions are picking up continues to build, another trend appears to be working in the opposite direction. According to The Deal, the rising cost and disappearing availability of intellectual property insurance may threaten M&A, at least for certain types of tech companies.

The cost of such insurance is directly related to litigation. In the good old days, as recently as eight months ago, acquirers could easily and cheaply purchase IP insurance for third-party claims of infringement against their targetís patents and other intellectual property. But now, according to industry observers, such insurance has become pricey -- with premiums as much as 60% of the prospective liability -- and scarce. Itís increasingly available only to large technology companies and only for lawsuits already known and pending.

The Deal cites one transaction killed by such IP concerns, and another recent one in which IP tangles are probably to blame. Last summer, Genesis Microchip and Pixelworks suspended their $600 million merger talks when Silicon Image won a patent infringement against Genesis. More recently, analysts suspect IP concerns quashed Synopsysí $415 million purchase of Monolithic Systems Technology (MoSys) after MoSys was sued by UniRAM for alleged theft of trade secrets.

While the trend is of course worrisome, the examples of deal derailment provided all seem to pertain to the chip design business, an industry far more reliant than most on intellectual property asset management. In contrast, many software and technical services vendors find patents irrelevant to the pursuit of their business opportunities.

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