Key Intellectual Property, Contract, and Information Technology Issues in an M&A Transaction
KEY INTELLECTUAL PROPERTY AND INFORMATION TECHNOLOGY ISSUES IN AN M&A TRANSACTION 27
The Backdrop• Increasingly, the value of companies, especially tech companies, revolve around intangibles and goodwill, ultimately expressed in the strength of their IP: Their trademarks, patents, copyrights, trade secrets/know‐ how, software, and domain names• Ubiquitous use and reliance on Internet, IT, social media and other technologies have increased the stakes• Global markets for in‐provision of services and sale and out‐licensing of products and services complicate matters 28
Some IP Basics• IP rights extend one country at a time and are not global or multinational• Paying a contractor who developed IP for you does not transfer ownership of the IP• Owning a patent does not give you the right to sell a product covered by that patent• Domain names are not technically IP but are treated generally as such in the M&A process 29
IP/IT Due Diligence• Does Target own the IP it thinks it owns?• Does Target have the IP license rights it thinks it has (and are they transferable)?• Has Target taken appropriate steps to register its IP?• Is Target infringing any third‐party IP?• Is Target conducting its business in compliance with information privacy laws? 30
Chain of Title• Who originally created/developed/invented the work/invention?• Is there a written assignment of IP?• What about discrete components (art in a game…sound in a multimedia work…etc.)?• Who is listed as owner in registered IP? Have appropriate assignments been filed?• Also track new versions/releases/updates 31
Contract/License Issues• Basic but important questions: – Has the agreement expired? – Is the scope of license sufficient?• Nontransferability clauses are critical – Clauses sometimes prohibit not only assignment but also “change of control”• Does the license allow use by “affiliated companies”? How will the sale of one affiliated company affect license rights of remaining affiliated companies? 32
Software Issues• Use of Open Source must be carefully examined – Consider use of commercial scanning tools and services• Source code licensing and escrow arrangements will be examined closely• Review use of encryption and export controls• Proprietary software licenses are often non‐assignable• Internally used software and IT systems should be maintained properly, properly secured, and virus‐free as much as possible
America Invents Act• Fundamental Shift in American Patent System• First to File instead of First to Invent• 9‐month Post‐Grant Review Period• Prior Use defense expanded from business methods to other areas 34
Concluding Thoughts• Consider a pre‐acquisition IP audit to address issues before the buyer forces you to (which may lead to a lower sales price)• Measure your key IP against your key products and services – do you have a good match?• Don’t forget to transfer IP initially held by founders to the company• Use appropriate care in entering into license, development, and distribution agreements 36
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