Why Businesses Establish IP Holding Companies

by Jed Weiner

Companies possessing substantial intellectual property (IP) assets often establish an intellectual property holding company (IPCo) in their corporate structure. An IPco is a special purpose vehicle designed to hold and manage the IP of a corporate group. IPCo licenses the IP to affiliates for their use in business operations.

By putting all the IP into one entity, an IPco insulates other members of the corporate group from infringement liabilities. Inversely, it insulates IP revenue streams from the liabilities of operating affiliates and investor holding companies.

An IPco creates administrative efficiencies. Having an IPco makes it clear where the IP rights are located in the corporate structure and which directors and officers have the authority to make decisions about the IP. It also allows for consistency in IP management practices across the corporate group.

Consolidating IP into one entity can make divestitures easier by preemptively carving out IP assets that may be used by retained businesses.

An IPco may create opportunities for tax deductions through intercompany licensing agreements or tax efficiencies by using IP assets for capital contributions in subsidiaries.

One downside of an IPco is that, as a holding company, it may be unable to recover lost profits in the event of third-party infringement. But, in certain cases, a way to address this risk is to grant exclusive licenses to operating companies licensing the IP from IPco. In that case the corporate group may recover lost profits from infringers.

If you have any questions on IPcos, feel free to contact Jed Weiner, Head of Corporate at Mei & Mark LLP.