Presenting a live 90-minute webinar with interactive Q&A IP Due Diligence in M&A Transactions Conducting IP Investigations and Leveraging Results During Deal Negotiations THURSDAY, DECEMBER 11, 2014 1pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Carey C. Jordan, Partner, McDermott Will & Emery, Houston Jeffrey A. Wolfson, Partner, Haynes and Boone, LLP, Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
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IP Due Diligence in M&A Transactions Presented by: Carey Jordan Jeff Wolfson
IP Due Diligence Issues Being Covered I: IP Diligence & Team Review Issues II: Post-NDA Considerations III: Diligence on Target s Agreements IV: Typical diligence problems V: Leveraging diligence in deal negotiations Carey Jordan, Partner, McDermott Will & Emery LLP Jeff Wolfson, Partner, Haynes and Boone, LLP 6
M&A Activity is Hot In 2000, there were 279 U.S. deals with a value of $1.5 trillion In 2012, there were 9,963 deals with a value of $860 billion In 2013, there were 8,883 deals with a value of approximately $980 billion www.mwe.com 7
M&A Basics What is M&A? Negotiated mergers and acquisitions Hostile takeovers JVs and strategic alliances Dispositions and spin-offs Players Public companies Private companies Private equity funds, hedge fund and other investors Individuals and families www.mwe.com 8
Where IP Due Diligence Fits in the Overall Deal Structure Confidentiality Agreement Between Target and Buyer Proprietary LOI Stage 2 IP DD under NDA Due Diligence Negotiate and sign purchase agreement, Debt commitment letter Pre-closing matters Negotiate financing documents (e.g., credit agreement) Closing Public Due Diligence to Determine Desirability of Acquisition Stage 1 IP DD = Public Due Diligence Approach and Agree Focus of Today s Webinar: Issues that Arise Here in Stage 2 Auction Small Bid Package Post Closing www.mwe.com 9
I: Introduction to IP Due Diligence IP assets are a component of virtually every deal and drive many high technology merger and acquisition strategies. IP issues can materially affect deals: Failure to transfer important IP rights IP rights not as strong as first impression Inadvertently acquire potential or actual IP problems The primary reason for IP due diligence is to: Value the Target s IP assets, which can affect deal value Minimize risk of deal or operation of Target upon a closing Sometimes the IP issues can make or break the proposed deal 10
I: Introduction to IP Due Diligence Business goals should drive the focus and depth of the IP due diligence Are the business goals realistic? Understand the industry and the IP issues that predominate the industry If IP does or will produce large profits or protect profitable markets, significant due diligence is often necessary In contrast, if other assets drive the value of the deal, the intellectual property deserves a more limited review No one-size fits all diligence each deal needs a plan 11
I: The Reality of IP Due Diligence Diligence is a living process with moving targets Plan, but be ready to adjust as needed (IP DDRs, explanations, public record searches) Adjust deal terms based on diligence discoveries to secure key deal terms (value, rights/obligations) Ideally, complete thorough due diligence before final negotiations begin Involve the IP folks earlier rather than later (see Case Study 4 below) Strategize negotiation tactics with client based on due diligence discoveries 12
I: The Due Diligence Team Pre-NDA Assemble a due diligence team pre-nda Team can include the Buyer s best technical folks because this is based on public information Consider a secondary team for later or a full-deal team Be aware of the potential prosecution taint later Duty of disclosure obligations (37 C.F.R. 1.56) Employee v. consultant / outside lawyer Establish data management protocols Spreadsheets, databases, e-rooms, etc. 13
I: Pre-NDA Limitations Buyer is initially limited to public records Benefits: Target won t know of interest Helpful for initial cut on valuation May gain general understanding of Target IP policies May spot risks from lack of IP protection or from 3 rd party infringement / litigation records Helps identify issues to be resolved post-nda including due diligence plans, and to fill gaps in knowledge No risks of prosecution taint Problem: No access to the good stuff! 14
I: Identify, Categorize, & Evaluate Target s IP Assets Compile an initial list of Target s IP assets, focus on business as run, and Buyer s integration plans (including public patents, trademarks, copyrights and domain names) Public IP databases: USPTO databases, Copyright Office, foreign databases, domain name registrars Regulatory submissions U.S. Food and Drug Administration identifies small molecule drug patents in the Orange Book ; biologics listed in the Purple Book SEC Filings finances, licenses, etc. Court records - related litigations and court papers 15
I: Identify, Categorize, & Evaluate Target s IP Assets Analyze the ownership and clean title of the IP verify the target can transfer clean title. Assignment records Maintenance fee payment records Security interests? Employee/contractor agreements; joint and gov t ownership IP assets asserted, licensed or enforced? Court filings, regulatory filings, press releases, blogs, other social media Does the IP look right for business needs? Are key countries important to the business covered? Key products covered by IP assets? 16
I: Pre-NDA Ownership Red Flags Question everything about chain of title! Track Record they re virtually all deficient Missing assignments by listed inventors Disputes over rights Rights still in the name of a 3rd Party Investigate further if suspicious Stanford case get present assignments ( hereby assign ), not just future executory assignments Inventor rights / royalties in certain countries 17
I: Specific pre-nda Investigation (if Warranted) Inequitable conduct issues that can affect value? Mostly involves violation of the duty of candor to the PTO Uncited art especially authored by patentees or assignees False (not just incorrect) statements/arguments made during prosecution, particularly in Declarations (Therasense v. B-D) Unnamed inventors (may turn up post-nda) Fee payments proper (small entity status)? Consider relative value of IP assets and tailor DD Are classes correct and cover use/intended use? Any confusion issues misuse by Target; 3rd Parties? 18
I: Pre & Post-NDA Considerations Do No Harm Reporting to Buyer s Management Candor is important. But not always written candor. Reserve certain issues for deep-review post-closing Report only to actual client Related inventors need their own counsel Discuss negotiation tactics and valuation in view of IP DD Target IP Assets (need to evaluate strength/scope?) Product Clearance / 3rd Party IP Assets (litigation risk) Protection of upcoming products Direct competitor issues Consider if deal structure is right (or still worthwhile) Acquisition? Or use license, supply/distribution, or joint venture? 19
II: NDA Considerations Term(s) including confidentiality obligations Parties who are bound? (financial middleman gets info?) Handling of information if deal collapses? Strict limitations on who can receive at each party? Nonsolicitation? Non-compete? Standstill? Exclusive discussions? Do any non-party providers of info have a right to sue? Usually, strictly limited rights to use info in M&A deals Confidentiality retained post-transaction (whether or not successful)? NDA v. NDA terms in Purchase Agreement, and all parties including Sellers Does Target want a prosecution bar on recipients? Confidential marking requirements? Goal under an NDA - Follow up on inconsistencies and problems 20
II: Post-NDA Issues What Team will handle further diligence review? Factors: Size of Buyer? Product/tech overlap? NDA terms? Same team? Efficiencies, but raises concern of taint Don t be the nail under the hammer of NDA / Duty of Disclosure Could also hit ethics rules requiring zealous advocacy New team? Has to start over (may need better initial planning!) Not key inventors at Buyer or prosecution lawyers? Will clean room procedures protect Buyer? Merger of Direct Competitors? Indirect? Strategic Fit? Lighting Science Group (Target) v. Koninklijke Philips Electronics NV 21
II: Post-NDA Considerations The Hidden Picture Relevant IP assets not in Target s name? Unpublished IP assets All technology and IP licenses, whether in-licenses or out-licenses, and all other related contracts (e.g., supply, research, joint development, manufacturing/distribution, etc.) Terms: exclusivity, royalties, milestones, IP ownership, transferability Relevant 3rd Party Patents & IP list of all 3 rd party patent rights relevant to both marketed and pipeline products and methods of manufacture and use (e.g., owned by Affiliate?). Copies of all threatened or actual IP disputes, cease and desist notices, etc., whether initiated by Target or a 3rd Party. Copies of Target IP-related ownership docs and security interests. 22
II: Post-NDA Considerations The Big Picture Pending applications? Can messes be fixed or adjusted to cover new products? Refilings/Continuations? Reexaminations, Reissues, Supp. Ex., and Reviews (IPR/PGR)? Third Party submissions Who takes care of the IP problems, Buyer or Target? Scope & maturity of IP portfolio Bulk of assets issued? Recently filed? All nearly expired? R&D pipeline? Resolution / status of ongoing 3rd Party disputes? 23
II: Post-NDA Considerations Determine patent term (esp. for pharma) How much patent exclusivity is left? Related marketing exclusivity? Check FDA Orange Book Key GATT date: June 8, 1995 Pre-GATT term: 17 years from issue or 20 years from earliest priority date, whichever is longer Post-GATT term: 20 years from earliest priority date Patent term adjustments Hatch-Waxman 156 Exclusivity Consider product lifespan plans and substitutability (for all industries); some of this can be done pre-nda. 24
III: Diligence on Target s Agreements Impacting the Transaction are Critical to Stage 2 DD The assignability of the Target s contracts (e.g., an exclusive license) is often critical to the Buyer s interests and willingness to go forward Examples of critical contracts include, but are not limited to: Licenses for key technology or products/brands Customer contracts Supply contracts Leases In Stage 2 due diligence, the Buyer must analyze the potential impact of the transaction on the Target s material contracts in order to assure they will inure to the Buyer s (and surviving entity s) benefit post-close Important even if the contracts will not be assigned to the surviving entity in the transaction www.mwe.com 25
III: Contract Assignability Generally Contracts are generally freely assignable absent restrictions in the contract unless: The assignment would materially change the duties of the nonassigning party or have a material adverse impact on such party, Where the assignment is prohibited by law or public policy, or Where the assignment is prohibited by the terms of the contract. www.mwe.com 26
III: Licenses and Transferability Summary By default, licenses are generally not assignable/transferable, except for exclusive copyright licenses Considered personal property Factors to consider in whether the licenses are assignable: Terms in the agreements themselves do the agreements have antiassignment or change of control or termination provisions that would either prevent or allow assignment? Structure of the transaction more later Governing law Just because an assignment is not triggered as a result of the particular transaction does not mean the other provisions of the contract are not implicated (i.e., change of control, termination) www.mwe.com 27
III: IP Agreements Ability to Assign Without Consent When License is Silent Patent Copyright Trademark Trade Secret Non-Exclusive License Exclusive License Governing Law NOT assignable NOT assignable NOT assignable Addressed by the agreement Generally NOT assignable (but see Calif. Courts deciding under state law, assignable)* Federal common law; except Calif. Courts apply state law Generally assignable (but see the 9 th Cir. Opinion)** Federal common law and Copyright Act Generally NOT assignable (but see bankruptcy courts finding assignable)*** Federal common law (Except bankruptcy courts apply Chapter 11) Addressed by the agreement State law *Superbrace, Inc. v. Tidwell, 124 Cal. App. 4 th 388 (4 th Dist. 2004. **Gardner v. Nike, Inc., 279 F. 3d 774 (9 th Cir. 2002). ***In re Global Home Products, LLC, 06-10340-KG, 2006 WL 2381918 (D. Del. Aug. 17, 2006). www.mwe.com 28
III: Example of a Typical Anti- Assignment Provision No Assignment. Licensee shall not assign any of its rights under this Agreement, except with the prior written consent of Licensor. All assignments of rights are prohibited under this section, whether they are voluntary or involuntary, by merger, consolidation, dissolution, operation of law, or any other manner. For purposes of this Section, (i) a change of control is deemed an assignment of rights; and (ii) merger refers to any merger in which Licensee participates, regardless of whether it is the surviving or disappearing corporation. www.mwe.com 29
III: Example of a Change of Control Definition Change of Control means (a) a merger, reorganization, arrangement, share exchange, consolidation, private purchase, business combination, recapitalization or other transaction, involving Licensee as a result of which (i) the stockholders or owners of Licensee immediately preceding such transaction would hold less than 50% of the outstanding shares of, or less than 50% of the outstanding voting power of, the ultimate parent company resulting from such transaction immediately after consummation thereof; (b) the direct or indirect acquisition by any Person or group of beneficial ownership, or the right to acquire beneficial ownership, of more than 50% of either the outstanding voting power or the outstanding shares of Licensee of any part, division or asset of a company that is directly competitive with any Licensed Product; or (d) the adoption of a plan relating to the liquidation or dissolution of Licensee. www.mwe.com 30
III: Selected Transaction: Asset Purchase BEFORE Target assets AFTER Buyer Buyer Buyer wants all of certain assets of the Target (may only be IP) Buyer assumes some liabilities (usually) Asset purchase = an assignment, and will require consent to assign to Buyer Query: Is consent from the 3 rd party possible? Target s Assets www.mwe.com 31
III: Selected Transaction: Direct Merger BEFORE Target merger AFTER Buyer Buyer Target ceases to exist and mergers directly with and into the Buyer Buyer survives the merger Buyer assumes all liabilities by law Generally, a direct merger is an assignment and licenses will require consent to assign to Buyer Query: Is consent from the 3 rd party possible? www.mwe.com 32
III: Selected Transaction: Forward Subsidiary Merger Target BEFORE merger AFTER Buyer Merger Subsidiary Buyer Subsidiary of Buyer Forward triangular merger Target ceases to exist and mergers directly with and into a wholly owned subsidiary of the Buyer, the Merger Sub surviving Merger Subsidiary assumes all liabilities by law Although a FSM may not trigger an anti-assignment provision because agreements will vest in the surviving Merger Sub by law, Target s IP licenses will require consent to assign to Buyer: in the context of a patent or trademark license, a transfer occurs any time an entity other than the one to which the license was expressly granted gains possession of the license * www.mwe.com 33 *Cincom Sys. v. Novelis Corp., 581 F.3d 431 (6 th Cir. 2009)
III: Jurisdictional Note Delaware courts have held that a forward triangular merger does not result in an assignment by operation of law because the target is not the surviving entity and its rights, liabilities, and interests vest in the surviving entity (i.e., Merger Subsidiary). See, e.g., Tenneco Auto Inc. v. El Paso Corp., 2001 WL 453930 (Del. Ch. Mar. 20, 2002); Star Cellular Tel. Co. v. Baton Rouge CGSA, Inc. 19 Del. J. Corp. L. 875 (Del. Ch. 1993). www.mwe.com 34
III: Selected Transaction: Reverse Subsidiary Merger BEFORE Buyer Target merger AFTER Buyer Target Subsidiary of Buyer Reverse triangular merger A wholly owned subsidiary of the Buyer mergers with and into the Target, with the Target being the surviving entity Target retains all liabilities; Buyer is insulated from these Generally, Target s contracts and licenses DO NOT require consent to assign to Buyer www.mwe.com 35
III: Jurisdictional Note In Feb. 2013, Delaware Chancery Court rejected the leading California case and held that a reverse triangular merger does NOT result in an assignment by operation of law. Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH, C.A., 62 A. 3d 62 (Del. Ch. 2013). But California courts have held that this is an assignment. SQL Solutions, Inc. v. Oracle Corp., 1991 WL 626458 (N.D. Cal. Dec. 18, 1991) www.mwe.com 36
III: Delaware: Meso Scale Diagnostics Case BioVeris granted MST a broad license to certain technology BioVeris granted Rocke a limited license to the same technology BioVeris, Roche and MST entered into a consent agreement that include a nonassignment provision to protect MST: Neither this Agreement nor any of the rights, interests, or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties. Roche then acquired BioVeris through a RSM. Roche discontinued BioVeris s operations. MST sued. MST argued that merger is an assignment by operation of law and therefore MST s consent was required per SQL Sol ns v. Oracle (Calif.) Roche argued that RSM is similar to a stock purchase and change in ownership, not an assignment, and therefore, the anti-assignment provision was not triggered www.mwe.com 37
III: Delaware: Meso Scale Diagnostics Case Court denied Roche s motion to dismiss and stated that neither party s position was unreasonable, but California SQL Sol n case is unreported and therefore not binding, SQL Sol n is based on questionable reasoning, Even if RSM is not an assignment generally, in this case, taking complaint allegations on their face as true for purposes of the motion to dismiss, there was more than a mere change of ownership because Roche discontinued BioVeris s operations The case did not merit much attention in the bar because it was considered to be limited to these facts. BUT... www.mwe.com 38
III: Delaware: Meso Scale Diagnostics Case In 2013*, the Court granted Roche s motion for summary judgment Held Roche s interpretation of the non-assignment clause was more reasonable in light of the facts presented Held that Delaware General Corporation Law supports Roche s position that RSM generally is not an assignment by operation of aw or otherise Delaware courts have refused to hold that mere change in the legal ownership of a business results in an assignment by operation of law. *Meso Scale Diagnostics v. Roche Diagnostics, 62 A.3d 62 (Del. Ch. 2013) www.mwe.com 39
III: California: SQL Solutions Case In 1987, D&N Systems licensed software from Oracle. In 1990, D&N (renamed SQL Solutions) became a subsidiary of Sybase, an Oracle competitor, as a result of an RSM. Oracle contended that SQL violated the license agreement s antiassignment provision California court held that RSM constituted a transfer by operation of law (i.e., an assignment) and that under federal law, a copyright license cannot be transferred without the licensor s consent Other California district courts have rejected SQL Sol ns, analogizing California state law as stock sales, noting that there could be no contention that the corporation s licenses would be extinguished as a matter of law, since the two contracting parties were still extant and in privity. * www.mwe.com 40 *Florey Inst. Of Neuroscience & Mental Health v. Kleiner Perkins Caufield & Byers, 2013 U.S. Dist. LEXIS 138904 (N.D. Cal. Sept. 26, 2013)
III: Summary of Transactions and Triggers Transaction Type Assignment Triggering Anti-Assignment Provisions? Change of Control Provision Triggered? Asset sale Yes n/a Direct Merger Yes Yes Forward Subsidiary Merger Reverse Subsidiary Merger Likely yes (by operation of law) Likely not Yes Yes Conclusion = Buyer must investigate all key agreements, especially IP licenses, to determine triggers and ability to get necessary consents to attain key licenses www.mwe.com 41
III: Example Underscoring Danger of Assuming IP Licenses Will Transfer Without Consent Cincom granted a license to Alcan Ohio to use its database management software. The license stated that it was non-exclusive and nontransferable, that the software was the proprietary and confidential information of Cincom, and that Alcan could not transfer its rights or obligations without the prior written approval of Cincom. Several years later, Alcan reorganized through a series of mergers to become Novelis. While the licensed software remained on the same computer and site as specified in the license, Alcan failed to seek Cincom s permission to continue using the software 6th Circuit affirmed the finding by the S.D. Ohio that Novelis committed copyright infringement = the software license had not been properly transferred to Novelis. Court applied federal common law to hold: in the context of intellectual property, a license is presumed to be non-assignable and non-transferable unless allowed explicitly even if the license is silent as to transfers. The court rejected Novelis argument that the federal common law was developed to prohibit transfers to a licensor s competitor and should not be applied to a friendly reorganization. www.mwe.com Cincom Systems Inc. v. Novelis Corp. (6 th Cir. 2009) 42
III: Example Underscoring Danger of Assuming IP Licenses Will Transfer Without Consent The case is interesting because Novelis had accomplished the reorganization through affiliate mergers that did not result in a transfer or an assignment. Ohio s merger statute was amended to be consistent with the Model Business Corporation Act (MBCA), which in comments states that a merger is not to be considered a conveyance, transfer, or an assignment. Construing the MBCA amendment as cosmetic, the court found that the legal entity had changed as a result of the merger and therefor infringed the copyright Ohio merger statute is identical to that of a large plurality of other jurisdictions, including Delaware www.mwe.com 43
III: Assuage Risks with Resulting Deal Terms What reps and warranties do you need? Be wary of knowledge qualifiers from the Target Consider whether the target is collectable post-close? Representations and warranties may mitigate risks of non-produced documents, e.g., agreements affecting rights transferred Do not sign a representation that says you have seen all you need to see and have entered into the transaction willingly www.mwe.com 44
IV: Typical Problems in IP Diligence - Opinions Due Diligence of Product Clearance Don t blindly ask for opinions (FTO, non-infringement, etc.) Ask for list of opinions relevant to key products (None?) Seek summary of important opinions Consider a common interest / joint priv. agreement Facts for prior user defense under AIA needed? 3rd Party IP rights may be sold to a troll Buyer could be a new deep pocket that triggers litigation Is collection search or FTO study warranted? Opportunity to buy/license blocking IP identified? Consider litigation risk from past entanglements/resolutions 45
IV: Typical Problems Arising During IP Diligence Target s Counsel Tends to tailor disclosure Full disclosure often limited in auction-style M&A until post-bidding war; only last 1-2 candidates see goods Avoid reliance on Target opinions & access to ongoing lit. Need to comply with 3rd Party NDAs Approach for consent to share with Buyer/Buyer Counsel Create extract/summary to share? Share in confidence and bear risks Targets seek to track materials to prevent misuse Reps/Warranties limited to avoid problems 46
IV: Typical Problems Arising During IP Diligence Some other 3rd Party Roadblocks Post-Closing Marketing problems (branding? competitor prods.?) Regulatory approvals (medical devices/pharma?) Government investigations (EPA? FTC?) Supply issues / delays Infringement allegations against acquired Target New products not cleared early (branding & patents) These can often be spotted during in-depth diligence; some clients prefer a minimalist approach 47
IV: Typical Problems Post-NDA: Case Study 1 $20 MM acquisition with 3 key personnel, 2 patent applications, know-how, manufacturing equipment, and a customer list Client teamed with IP lawyer for on-site visit Interviews of key personnel re: technology Freedom-to-Operate evaluation Patentability evaluation of application 48
IV: Post-NDA: Case Study 1(cont d) Analysis of IP-related diligence? Patent scope would be limited, if any FTO was reasonably clean Serious questions about development of tech Lack of documentation on transferred know-how Diligence Result = Re-negotiate financials to $5 MM deal with annual $1 MM payout and consulting Actual Result = Only $1 MM paid; 95% savings 49
IV: Post-NDA: Case Study 2 $150 MM M&A transaction Two inventors assigned; one had not 3rd inventor filed a paper in the file history: Those guys are not inventors. It s all me! Employee agreements had IP assignment clauses Some ideas to address this? Pay 3 rd inventor for rights just in case? Affidavit from other inventors / manager Escrow holdback to resolve specific issue 50
IV: Post-NDA: Case Study 2A $90 MM M&A acquisition Two inventors assigned; one had not (Sound familiar?) 3rd inventor had no employment agreement 3rd inventor left the company... on bad terms Some ideas to address this? Have a 3rd party try to acquire the rights? Support for hired-to-invent doctrine? 51
IV: Post-NDA: Case Study 3 $250 MM Facility Being Built for Joint Venture Patented Tech and Know-How being licensed Cease & desist correspondence unresolved Contacting 3 rd party forbidden by co-venturer Multi-pronged resolution Walkthrough of independent R&D efforts Sufficient extended indemnification Client understanding and acceptance of RISK 52
IV: Post-NDA: Case Study 4 $60 MM deal to acquire Target from a larger corporate family 100-patent family spread across 8 entities Target owned 9 patents Deal progressed for 3 months w/o IP input Target used patents to be retained and retained entities used Target patents Result: Cross-license needed; Email Link Corp. v. Treasure Island re disclaimed pats. 53
IV: Post-NDA: Case Study 5 $8 MM deal to acquire Target with topical product 1 inventor assigned; 2 had not (Familiar theme?) The 2 inventors assigned to another company (Diligence!) An exact duplicate application (with different claims) was filed on the same day and had not yet published (not public info) Target was about to enter a lousy JV with Chinese entity JV agreement was poorly worded and agreed to give rights to all Target s technology two years after JV was formed Target entered JV during our negotiations despite delay request delay Attempts to amend or cancel complicated by Chinese law JV 54
IV: Post-NDA: Anticipate, and Simplify the Deal Target Diligence Tips Streamline Before Selling Internal transfer / clean-up agreements w counterparties Consider creating high-level summary of agreements Clean up recorded title & ownership docs for IP Develop draft Reps/Warranties; test accuracy before Buyer due diligence Make necessary disclosures early; don t hide the ball Before diligence, determine what, if any, privilege waiver or 3rd Party info the Target can agree to (and enter a common interest / joint privilege agreement with Buyer) 55
V: Leveraging Diligence Results in Negotiations Non-Competes, Lock-Ups, Break Up Fees Clauses should be tailored and specific, limited in time and possibly geographic scope Tied to the life of patent? Scope relative to patent claims or disclosure? Finite terms, related only to the disclosed materials, carving out existing IP and development activities of acquiring company May filter curious (but not serious) buyers 56
V: Leveraging Diligence Results in Negotiations Determine scope of Target s pre-existing licenses What rights are being licensed? Are they sufficient to accomplish Buyer s goals and expansion plans? What are the restrictive clauses to monitor? Territory Field of use Exclusivity Sublicenseable/Transferable? (see Section III) Does the license survive the upcoming transaction? Does it need to? 57
V: Leveraging Diligence Results in Negotiations IP Indemnification How long? 18 months? Is there a duty to defend? Does the target have assets to indemnify? Consider an escrow or hold-back fund Limitations on Liability Dollar amounts? Separate baskets / caps? 58
V: Leveraging Diligence Results in Negotiations Determine the scope of any pre-existing agreements the target has and what effect the structure of the proposed transaction will have on those agreements Section III Transferability Issues Will change of control or anti-assignment clauses be triggered? Will there be transferability issues? Will all necessary licensed rights transfer to the new entity? Will the transaction (or failure to complete it) trigger any liabilities? Will publicity do that? 59
V: Conclusion A Few Practical Points Early IP diligence helps set value & manage risk Consider re-negotiating Target agreements with counterparties to smooth out issues and manage risk Converge diligence issues and deal terms Use unresolvable issues to re-negotiate Be guided by business needs (which shift as the deal progresses) in further diligence and drafting Consider escrow/holdback for protection 60
Q&A 61 Thanks for your time! Questions for Carey and Jeff? Carey Jordan - Ccjordan@mwe.com ccjordan@mwe.com, 713.653.1782 Jeff Wolfson Jeff.Wolfson@haynesboone.com jeff.wolfson@haynesboone.com, 202.654.4565
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