IPR ISSUES IN MERGER AND ACQUISITIONS UNDER INDIAN COMPETITION LAWS AND THE EFFECT TAKEN BY INDIA TO HARMONISE INTELLECTUAL PROPERTY PROTECTION AND COMPETITION LAW

Introduction

Mergers and acquisitions is a general term that defines the unification of two or more companies or their assets through different types of financial transactions, which may include mergers, acquisitions, tender offers, and similar arrangements. Due to the surging dominance of technology-driven industries in the current economy, companies face immense pressure to develop efficient and effective operations simply to remain competitive. As a solution to these challenges, companies around the globe turn to mergers and acquisitions to work more effectively and reduce the risk of becoming obsolete. The foundation for M&A activity was established in the late 1990s, and corporate restructuring has been a defining feature of the business landscape ever since. M&A serves as a force for organisational stability and potential growth worldwide, and the rise of globalisation has only intensified this activity in the current era.

Mergers and acquisitions play an important role in two ways: first, they strengthen multinational companies, and secondly, they provide an efficient survival strategy for micro, small, and medium enterprises to generate greater profit. When one or more companies come together with the purpose of forming a new entity and with the aim of gaining advantages such as expanded market access and increased profit, the arrangement is generally termed a merger. Under the Companies Act, 2013, a merger is defined as the combining of two or more entities into a single entity, with the merging of their assets and liabilities, governed primarily by Sections 230–232 of that Act. Once two or more companies unite through a merger, they will operate under a new resulting entity. Amalgamation, though used interchangeably with merger, differs from the latter in that it involves both companies ceasing to exist independently and forming an entirely new entity, whereas absorption involves one company being subsumed into another. By contrast, acquisition is the process of gaining control over another company’s assets or management without formally merging the two companies.

According to Mensch, “basic innovation emerges because established industries using traditional economic routines stagnate.”¹ Innovation is a widely used term, but closer examination of the phenomenon it encompasses is less frequent. One of the greatest economists of the 20th century, Joseph Schumpeter, described innovation as “the setting up of a new production function.”² Such a definition covers five specific scenarios leading to a new production function:

“(1) introduction of a new good; (2) introduction of a new method of production; (3) opening of a new market; (4) the conquest of a new source of supply of new materials; and (5) the carrying out of a new organisation of any industry (creating or breaking up of a monopoly).”

This framework is directly relevant to M&A activity in IP-intensive sectors, where innovation assets — patents, proprietary processes, and technological know-how — form the primary basis of transactional value.

Intellectual property’s role in mergers and acquisitions does not stop at mere ownership or transfer. It extends further into the strategic evaluation of synergies and return on investment. Dealing with the recording of ownership changes before the Indian IP Office, aligning with domestic and international laws, and navigating jurisdictional complexities give rise to significant legal and procedural considerations in these transactions. With the revolutionary shift in the perception of IP as a core business asset, M&A activities must adapt to the specific requirements that these considerations demand.

Certain peculiarities still remain in place, however, and these instigate informational asymmetries that narrow the informational basis upon which transactional decisions are made, thereby adversely affecting one or more parties to a transaction. Understanding how intellectual property rights interact with mergers and acquisitions is essential, given that M&A activity in IP-intensive fields dominates both in value and in volume. Despite this significance, the connection between IP protection and the magnitude of M&A activity remains understudied, leaving considerable scope for new and valuable research from both academic and industry perspectives.

IP Law Framework in India

Intellectual property encompasses a category of intangible assets and creations that are the result of human intellectual and creative effort. The expressions of these creations of the mind take various forms, including inventions, literary and artistic works, symbols, and even business processes. Intellectual property rights are the protections granted by the state to creators and innovators, allowing them to control how their creations are used, reproduced, and distributed. This bundle of rights includes patents, copyright, trademarks, trade secrets, geographical indications, plant varieties, and related protections.

1. The Patents Act, 1970

As provided under the Act, patents are granted for new inventions or discoveries, conferring upon the inventor the right to use, make, and sell the invention for a period of 20 years. Patent law often becomes a critical consideration in M&A transactions, owing to the provisions that accommodate compulsory licensing, through which the state can grant licences for the production of essential patented goods to be made available at a reasonable price within the boundaries of the country. M&A due diligence must therefore evaluate patent validity carefully, particularly in light of the stricter patentability criteria applicable under Indian law.

2. The Trade Marks Act, 1999

Trademarks protect distinctive symbols, logos, names, and slogans that help consumers identify products or services. The Trade Marks Act, 1999 regulates the protection of names, logos, and marks that distinguish brand identity. During the M&A process, trademarks are assets of prime importance. The Act makes provisions for the registration, assignment, and licensing of trademarks, making it consequential for both acquirers and target companies to investigate the strength of their respective trademark portfolios. Trademark infringement or pending litigation can severely complicate an M&A deal. Concerns such as brand goodwill and the proper assignment of trademarks must be addressed with concrete measures post-acquisition to avoid disputes and ensure that brand identity is successfully preserved.

3. Trade Secrets and Confidential Information

Trade secrets encompass confidential business information such as manufacturing processes, formulas, and customer lists. Protection of trade secrets relies on maintaining their secrecy within a business. India does not currently have dedicated legislation for trade secrets; however, confidential information is protected under the law of contract and relevant provisions of the Information Technology Act, 2000. In M&A transactions, confidentiality agreements play a significant role. Breach of confidentiality can result in both legal and reputational harm; therefore, substantial protective measures are necessary on the part of the acquiring company post-acquisition to prevent misappropriation of such information.

The Process of IP Due Diligence and Valuation in M&A

i. Due Diligence

IP due diligence is a crucial component of the M&A process in India. In an M&A transaction, the acquiring company or investor is typically interested in acquiring the target company’s IP assets as part of the deal. IP due diligence helps the acquirer assess the value and risks associated with the target company’s IP portfolio before the transaction is concluded. For example, it is essential to establish that patents, trademarks, and copyrights are properly registered, so that co-ownership disputes or licensing issues do not impair the acquirer’s ability to freely use and exploit its IP assets post-acquisition. High-profile cases such as the Rolls-Royce–Volkswagen transaction of 1998 — in which the trademark rights to the Rolls-Royce name were ultimately found to reside separately from the manufacturing assets — underscore the consequences of inadequate IP due diligence and the failure to secure key IP assets prior to completing a deal.

ii. Valuation of IP

Assessing the intrinsic value of IP assets remains one of the most challenging aspects of due diligence. The specific nature of IP assets and the currently inefficient IP market give rise to considerable information asymmetries concerning their value. Sectors such as information technology and the pharmaceutical industry, for instance, demand an extensive analysis of patents and the scope of future earnings. Indian companies can enhance valuation processes by incorporating international models, such as comparable transaction analysis or sophisticated econometric forecasting. It is also important for the purposes of accurate value estimation that an up-to-date register of all IP rights be maintained as part of the company’s documentation.

Legal and Regulatory Challenges

1. Licensing Agreements and Technology Transfers

Technology transfer can take place in two ways: first, through the transfer of knowledge, and second, through formal technology transfer contracts. Within the purview of technology transfer, there is no prescribed format or universal standard for such contracts or agreements, making it essential to consult an IP lawyer from the very inception of the negotiation process.

Challenges with technology transfer agreements include updating ownership details of royalties generated from the transferred technology before the Indian IP Office, which also poses significant jurisdictional challenges in ensuring compliance with the applicable laws.

2. Competition Law and IPR

Intellectual property rights grant exclusive rights to the creators of such property with the intention of ensuring the free use of such creation for a limited period of time. This approach is grounded in the incentive theory of intellectual property, which focuses on maintaining a balance between private rights and public access. Competition law, on the other hand, sets its sights on promoting economic growth and the welfare of consumers. Competition is an essential driver of any economy, pushing industry forward to innovate and improve. The correlation between competition law and intellectual property law is readily identifiable, given that both policy frameworks are integrated in their treatment of innovation and related legal questions.

In the Indian context, the Competition Act, 2002 and the oversight of the Competition Commission of India (CCI) play an important role in scrutinising M&A transactions that may give rise to anti-competitive concerns. Where a combined IP portfolio resulting from a merger confers excessive market power or raises barriers to entry, the CCI has the authority to impose conditions or prohibit the combination. This interface between competition law and IPR in M&A transactions therefore requires careful attention from legal practitioners and corporate stakeholders alike.

Benefits of Intellectual Property in Mergers and Acquisitions

Intellectual property acquisition adds substantial value to a company’s portfolio by capitalising on existing innovations and channelling those resources toward new product development. IP assets — patents and technologies in particular — protect a company’s competitive position in the market and facilitate the attainment of sustainable market leadership.

The nature of the technology transfer that occurs in the context of mergers and acquisitions — from privately held technology to widely applicable trade knowledge — opens considerable business opportunities across various markets, especially within high-tech industries such as pharmaceuticals and information technology.

Furthermore, IP acquisition enables a firm to acquire new inventions and competencies, thereby gaining a competitive advantage. The strategic adaptation that comes from acquiring proprietary know-how from competitors allows firms to reposition their market approach and consolidate leadership within their respective industries.

Case Studies and Case Laws

1. Successful M&As: Tata Steel’s Acquisition of Corus

The acquisition of Corus by Tata Steel in 2007 is one of the most high-profile M&A cases from India, in which intellectual property and operational expertise played a vital role. Tata Steel acquired Corus for approximately $12.11 billion, making it at the time the largest overseas acquisition by an Indian company.³ Through the transaction, Tata Steel gained access to Corus’ superior technology, patents, and strong distribution networks in Europe, particularly in the automotive and aerospace sectors. Corus, in turn, stood to benefit from Tata’s expertise in low-cost steel manufacturing. However, the deal attracted criticism over the high valuation placed on Corus relative to Tata Steel’s own size, raising questions about strategic alignment and financial planning in such cross-border M&A transactions.

2. Legal Failures: Kingfisher Airlines and Deccan Airways Merger

The merger of Kingfisher Airlines with Deccan Airways represents an unfortunate example of M&A failure attributable in part to poor IP and brand management. The merged entity, trading under the name “Kingfisher Red,” suffered from significant brand confusion resulting from inadequate trademark integration. This confusion eroded Kingfisher’s premium brand equity and contributed to the venture’s decline, illustrating clearly how inadequate IP and brand strategy can precipitate M&A failure.⁴

Conclusion

In conclusion, intellectual property has become a decisive factor in shaping the success and sustainability of mergers and acquisitions in India, particularly in an economy driven by innovation, technology, and global competitiveness. While the legal framework under IP and competition law aims to balance exclusivity with market efficiency, practical challenges — such as uncertainty in IP valuation, the absence of dedicated trade secret legislation, procedural hurdles in technology transfer, and inadequate integration of brand and IP strategies — continue to affect transaction outcomes. Addressing these concerns requires clearer regulatory guidelines on the valuation of intangible assets, statutory recognition of trade secrets, streamlined mechanisms for recording IP transfers, and stronger institutional coordination between the Competition Commission of India and the IP authorities. By adopting such reforms and encouraging greater legal awareness among corporate stakeholders, India can ensure that M&A transactions not only enhance business growth but also promote fair competition, innovation, and long-term economic stability.

Reference(S):

Legislations

1. Indian Patents Act, 1970.
2. Trade Marks Act, 1999.
3. Competition Act, 2002.
4. Companies Act, 2013.

Secondary Sources

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¹ Keklik, M., Schumpeter, Innovation and Growth, Ashgate Publishing Company, p. 10 (2003).

² Ibid.

³ Gupta, Vivek, Tata Steel’s Acquisition of Corus, Case Ref. No. 108-010-1, IBS Center for Management Research (2008).

⁴ Panigrahi, Ashok et al., “A Case Study on the Downfall of Kingfisher Airlines,” 6 J. Mgmt. Res. & Analysis 81 (2019).