Material Misstatement

U.S. securities law term describing false or inaccurate statements, or omissions of important information, concerning a company’s business or prospects, which can lead buyers of its shares to over-estimate their value or the company’s likelihood of success. Inaccurate or deceptive statements about intellectual property rights have been held to be material misstatements, for example:

  • Statements that a company had a pending patent and possessed trade secrets for its technology in the United States, when in reality the patent had already been assigned to another company;
  • Stating that a company had a patent when it had only made patent applications and was in fact reliant on third-party technology;
  • Falsely stating a company owned patents or patents-pending on Internet-related inventions;
  • Misstating the value and extent of a business’ copyright assets;
  • Implying a company had U.S. patent protection when it in fact only held a Russian Patent;
  • Concealing the rejection of a patent application;
  • Concealing an adverse court ruling relating to intellectual property;
  • Falsely stating that technology was not subject to third party IP rights because it had been developed in a clean room; and
  • Misleading statements about the FDA approval process or status of a drug or medical device.

Because many senior managers poorly understand intellectual property rights, the risk of a material misstatement in this area is high.

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