Welcome

General Electric’s To-Do List Includes Divvying Up Huge IP Assets

Nov. 12, 2021, 5:08 PM

General Electric Co. will have to decide how to allocate billions of dollars’ worth of patents, along with other intellectual property such as its name and iconic logo, as part of its split.

How smoothly GE manages the assets could impact its ability to transition to more efficient, streamlined entities and clamp down on debt. A fluid transition would allow the three new companies to move forward and focus on their respective business concerns. A contested one could divert resources and delay their split into units focused on health care, aviation, and energy.

Parsing the massive volume of IP will likely take years, especially given the varying tax and rights structures that a global conglomerate must consider, attorneys said. Much of the IP will have a relatively obvious new corporate home, but some of it may be shared or licensed across entities.

“Obviously there will be a careful evaluation of what patents, trademarks and trade secrets go with which company,” corporate and intellectual property attorney Jana Gouchev of Gouchev Law said. “There’s no black or white way of doing things.”

The issue is an integral part of any corporate breakup. Johnson & Johnson and Toshiba Corp., which have also announced splits, are confronting similar questions about how to allocate intellectual property.

Marketable Portfolio

GE ranked 15th in 2020 with 2,379 new patents granted, according to data compiled by the Intellectual Property Owners Association. It valued “patents and technology” at $4 billion in a December Securities and Exchange Commission filing.

The company also has to decide how to manage countless trade secrets, any copyright-protected software, and its famous trademarks.

Decisions on how to manage such a vast array of assets generally fall to subject matter experts, ultimately approved as part of broader business plans by executives and boards of directors, attorneys said.

Even with new entities and employees set to pursue divergent interests, GE has incentive to efficiently and amicably manage IP useful across companies, attorneys said. Failing to do so could delay the split and hurt all of the businesses’ ability to move forward.

“There’s no point in wasting not only time and money but also getting into litigation now,” intellectual property attorney Hogene L. Choi of Morrison & Foerster LLP said. “If I were on the board I would expect that they would be able to work things out.”

The core question will center on how different alternatives for dividing and possibly sharing the assets will help each entity achieve its new business goals, Choi said.

While companies still could share ownership in things like patents in theory, that “can result in competition and conflict, so it’s usually easier if one controls” it, she said.

There’s a good chance the company decides it best to set up a holding company to own IP that’s useful across different businesses, intellectual property attorney Luke K. Pedersen of Baker Botts LLP said. GE could draft licenses for the three core entities, and have the holding company manage and license that portfolio to other companies as well, he said.

“They have a pretty marketable asset in the patent portfolio,” said Pedersen, who helped manage IP assets during the bankruptcies of Nortel and Eastman Kodak Company. “A portfolio of this size is going to be very marketable outside of these three business units.”

Attorneys said it may make sense to let trademark rights on the name and logo pass to the most consumer-facing company of the three—likely the health care entity—and rebrand the other entities.

When GE sold off its home appliances business in 2016, it agreed to let Haier Smart Home Co. use the GE brand for 40 years, raising the potential for multiple entities keeping the name for at least some time.

Potential Pitfalls

Mismanagement of the transition could lead to issues in a number of areas. Patent application deadlines could lapse during the transition, intellectual property attorney Joseph A. Farco of Norris McLaughlin PA said.

A patent application must be filed within a year of the first sale of the item. If a new business unit pushes forward on a planned rollout without coordinating the accelerated schedule with those responsible for the application, it could invalidate the application, Farco said.

Other situations where miscommunication could harm rights involve trade secrets, which become unprotectable if revealed. The new entities would likely agree to continue to keep each others’ trade secrets, Choi said. But one company, especially a third party that acquires the information later, might not properly safeguard a secret it doesn’t intuitively recognize as important as another might, she said.

GE’s global reach presents another challenge, intellectual property attorney Michael Palmisciano of Sullivan & Worcester LLP said. The company will have to manage relationships among subsidiaries and file paperwork in various national IP offices, he said. Tax considerations in varying countries “will also inform business terms for each transactional license agreement or business consideration,” he said.

“There’s going to be some happy lawyers representing GE,” Palmisciano said.

But Farco said it might be better for GE to leave much of that work in the hands of just a few attorneys. “One or two attorneys can better handle a huge patent portfolio,” Farco said, for example, especially because they’re now all owned by the same entity.

Even “if GE in all its grandeur has nothing in place to find all its patents,” an attorney could outsource compilation of a spreadsheet and sort many of the patents fairly simply, Farco said. But several attorneys or firms who each do things differently, and have different levels of experience, would more easily get crossed up, with pieces fall through the cracks, he said.

“Given the broader mantra of getting rid of debt and of increasing efficiency, it’s an opportunity to do the same sort of thing,” Farco said. “The IP management should mimic the underlying intent” of the split.

To contact the reporter on this story: Kyle Jahner in Washington at kjahner@bloomberglaw.com

To contact the editors responsible for this story: Keith Perine at kperine@bloomberglaw.com, Melissa B. Robinson at mrobinson@bloomberglaw.com

To read more articles log in. To learn more about a subscription click here.