Bloomberg Spring 2008 Bloomberg CORPORATE LAW JOURNAL · PDF fileBloomberg CORPORATE LAW JOURNAL Volume 3 Spring 2008 ... Johnson is a co-author of the U.S. Law chapter of the Wrld

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ombe

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CO

RP

OR

AT

E L

AW

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UR

NA

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Vol

ume

3S

prin

g 20

08is

sue

'2

-Dat

abas

e M

&A

- W

hat's

Dife

rent

?

Jefr

ey C

. Joh

nson

, Ste

ven

3. P

ierc

e an

d D

avid

E.

Par

sly

Pry

or C

ashm

an L

LP

Rep

rinte

d.fr

om Blo

ombe

rgC

OR

PO

RA

TE

LA

WJO

UR

NA

LV

olum

e 3,

Spr

ing

2008

, Iss

ue 2

Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=c8c2d1ac-bd84-4479-809d-e0ba45394014

ELE

CT

RO

NIC

DA

TA

BA

SE

S

DA

TA

BA

SE

M&

A -

WH

AT

'S D

IFF

ER

EN

T?

By

Jefr

ey C

. Joh

nson

,* S

teve

n J

Pie

rce*

* an

d D

avid

E P

arsl

y **

*

INT

RO

DU

CT

ION

In m

oder

n so

ciet

y, a

s el

ectr

onic

dat

abas

es c

ontin

ue to

gro

w in

siz

e,co

mpl

exity

, and

sop

hist

icat

ion,

dat

abas

es h

ave

emer

ged

as a

hig

hly

valu

a-bl

e as

set f

or m

any

com

pani

es. I

ndee

d, th

e in

form

atio

n co

ntai

ned

with

ina

data

base

, and

the

data

base

's a

bilit

y to

man

ipul

ate

that

info

rmat

ion

insp

ecifc

way

s, c

an m

ake

each

dat

abas

e a

desi

rabl

e co

mm

odity

in a

var

iety

of c

omm

erci

al a

pplic

atio

ns. W

ith in

crea

sing

freq

uenc

y, d

atab

ases

are

be-

com

ing

a pr

imar

y ta

rget

of m

any

mer

ger

and

acqu

isiti

on tr

ansa

ctio

ns.

Thi

s ar

ticle

will

exp

lore

lega

l iss

ues

that

are

par

ticul

arly

crit

ical

, and

inso

me

case

s un

ique

, to

the

purc

hase

and

sal

e of

dat

abas

e as

sets

.

Wha

t Is

a D

atab

ase?

As

a pr

elim

inar

y m

atte

r, it

is im

port

ant t

o co

nsid

er w

hat e

xact

ly c

on-

stitu

tes

a da

taba

se. A

dat

abas

e is

sim

ply

a co

llect

ion

of in

form

atio

n or

gan-

ized

in a

way

that

is a

cces

sibl

e, a

nd c

an b

e so

met

hing

as

larg

e an

d so

phis

-tic

ated

as

Lexi

s® o

r W

estla

w®

or

as s

impl

e an

d m

unda

ne(b

y to

day'

sst

anda

rds)

as

a R

olod

ex®

. How

ever

, the

focu

s of

this

art

icle

is e

lect

roni

c

* Je

frey

C. J

ohns

on is

a p

artn

er in

the

New

Yor

k of

fce

of P

ryor

Cas

hman

LLP

. He

spec

ializ

es in

the

tran

sact

iona

l asp

ects

of t

echn

olog

y an

d in

telle

ctua

l pro

pert

y ex

ploi

tatio

n. In

par

ticul

ar, h

eha

ssi

gnifc

ant e

xper

ienc

e in

all

aspe

cts

of m

erge

rs a

nd a

cqui

sitio

ns, j

oint

ven

ture

s, s

trat

egic

alli

ance

s,pr

ivat

e pl

acem

ents

and

lice

nses

in th

e bi

otec

h, e

nter

tain

men

t, In

tern

et, p

harm

aceu

tica6

sof

twar

e an

dte

leco

mm

unic

atio

ns in

dust

ries.

He

has

been

an

invi

ted

spea

ker

and

pane

list a

t a v

arie

ty o

f pub

lic a

ndpr

ivat

e ev

ents

, inc

ludi

ng th

e D

igita

l Com

mer

ce S

umm

it in

200

6. M

r. J

ohns

on is

a c

o-au

thor

of t

heU

.S. L

aw c

hapt

er o

f the

Wrld

Onl

ine

Bus

ines

s La

w D

iges

t, an

d is

als

o a

co-a

utho

r of

Hea

lthIn

sura

nce

Por

tabi

lity

and

Acc

ount

abili

ty A

ct-C

ompl

iant

Mer

ger

and

Acq

uisi

tion

Tra

nsac

tions

, 2 B

LOO

MB

ER

G C

oRP

, L.J

355

(20

07).

Mr

John

son

can

be r

each

ed a

t (21

2) 3

26-

0118

orjj

ohns

on@

,Inyo

rcas

hman

.com

.*

* S

teve

n j P

ierc

e is

a p

artn

er in

the

New

Yor

k of

fce

of P

ryor

Cas

hman

LLP

. His

pra

ctic

e ar

eais

gen

eral

cor

pora

te a

nd c

omm

erci

al la

w, w

ith p

artic

ular

con

cent

ratio

ns in

pub

lic a

nd p

rivat

e m

erge

rsan

d ac

quis

ition

s an

d co

mm

erci

al tr

ansa

ctio

ns. H

e al

so h

as e

xten

sive

exp

eren

ce in

priv

ate

equi

ty a

ndve

ntur

e ca

pita

l fna

ncin

g tr

ansa

ctio

ns fo

r es

tabl

ishe

d an

d ne

wly

-for

med

bus

ines

s en

titie

s. M

r. P

ierc

eal

so a

dvis

es c

lient

s on

str

uctu

ral,

fnan

cing

and

gov

erna

nce

issu

es a

ssoc

iate

d w

ith v

arie

d en

titie

s,in

clud

ing

corp

orat

ions

, joi

nt v

entu

res,

par

tner

ship

s, li

mite

d lia

bilit

y co

mpa

nies

and

sim

ilar

alte

rnat

ive

busi

ness

ent

ities

. The

clie

nts

for

who

m h

e pr

ovid

es s

ervi

ces

are

in v

arie

d in

dust

ries,

with

asi

gnifc

ant n

umbe

r in

the

tech

nolo

gy, c

ompu

ter

softw

are,

med

ia, e

nter

tain

men

t, ap

pare

l pub

lishi

ng

and

othe

r si

mila

r in

dust

ries.

Mr

Pie

rce

can

be r

each

ed a

t(2

12)

326-

0139

orsp

ierc

eCpr

yorc

ashm

an.c

om.

***

Dav

id E

. Par

sly

is a

n as

soci

ate

in th

e N

ew Y

ork

offc

e of

Pry

or C

ashm

an L

LP H

ere

pres

ents

pub

lic a

nd p

rivat

e co

mpa

nies

in a

var

iety

of g

ener

al c

orpo

rate

mat

ters

, inc

ludi

ng c

orpo

rate

form

atio

n an

d go

vern

ance

, mer

gers

and

acq

uisi

tions

, cor

pora

te fn

ance

, and

sec

uriti

es is

suan

ce a

ndco

mpl

ianc

e. M

r P

arsl

y ca

n be

rea

ched

at (

212)

326

-085

9 or

dpa

rsly

@pr

yorc

ashm

an.c

om.

128


2008

]D

AT

AB

AS

E M

&A

- W

HA

T'S

DIF

FE

RE

NT

?12

9

data

base

s, w

hich

con

sist

of t

wo

prim

ary

com

pone

nts:

dat

a an

d so

ftwar

e.D

ata

is s

impl

y fa

ctua

l inf

orm

atio

n, a

nd c

an c

onsi

st o

f a s

ingl

e pi

ece

ofda

tum

suc

h as

a s

ocia

l sec

urity

num

ber,

or

a se

ries

of c

ompl

ex, i

nter

-re

late

d da

ta, s

uch

as th

e co

mpl

ete

geno

me

of a

mic

ro-o

rgan

ism

. The

softw

are

is th

e to

ol th

at e

nabl

es th

e da

taba

se u

ser

to m

anip

ulat

e an

d ac

-ce

ss th

e da

ta; i

t end

ows

a da

taba

se w

ith u

sefu

l fun

ctio

ns, s

uch

as th

e ab

il-ity

to s

earc

h th

e in

clud

ed d

ata,

to o

rgan

ize

the

data

in a

par

ticul

ar w

ay(e

.g.,

alph

abet

ical

ly),

and

to m

odify

the

data

or

add

new

dat

a.

Issu

es

Dat

abas

e tr

ansa

ctio

ns r

aise

que

stio

ns a

nd is

sues

that

, for

man

y la

w-

yers

, are

uni

que

or r

arel

y en

coun

tere

d. In

con

duct

ing

due

dilig

ence

, it i

scr

ucia

l to

inqu

ire in

to h

ow th

e da

ta w

as o

btai

ned,

who

has

the

right

toac

cess

the

data

, and

wha

t typ

es o

f use

s ar

e pe

rmis

sibl

e, in

clud

ing

whe

ther

third

par

ties

give

n ac

cess

to th

e da

ta m

ay d

iscl

ose

it to

oth

ers.

It is

typi

-ca

lly th

e ca

se th

at b

oth

the

data

and

sof

twar

e el

emen

ts o

f a d

atab

ase

con-

sist

of s

ome

data

and

sof

twar

e th

at is

pro

prie

tary

to th

e se

ller,

and

som

eda

ta a

nd s

oftw

are

that

is li

cens

ed to

the

selle

r. S

ecur

ing

licen

sed

right

sty

pica

lly in

volv

es c

onse

nts

and,

in s

ome

case

s, n

egot

iatio

ns, w

ith th

irdpa

rty

licen

sors

.T

he tr

ansf

er o

f the

dat

a an

d so

ftwar

e al

so r

aise

atte

ndan

t int

elle

ctua

lpr

oper

ty q

uest

ions

, suc

h as

whe

ther

the

data

is s

ubje

ct to

cop

yrig

ht o

rco

ntai

ns tr

ade

secr

ets,

and

eve

n, in

unu

sual

cas

es, w

heth

er th

e pr

oprie

-ta

ry s

oftw

are

is c

over

ed b

y pa

tent

s. M

oreo

ver,

dat

abas

e tr

ansa

ctio

ns m

ayru

n up

aga

inst

reg

ulat

ory

com

plia

nce

issu

es if

the

data

, for

exa

mpl

e, c

on-

stitu

tes

priv

ate

heal

th in

form

atio

n su

bjec

t to

strin

gent

priv

acy

and

non-

disc

losu

re m

anda

tes

of th

e H

ealth

Insu

ranc

e P

orta

bilit

y an

d A

ccou

ntab

il-ity

Act

(H

IPA

A).

IF

inal

ly, i

n ad

ditio

n to

reg

ulat

ory

com

plia

nce,

law

yers

mus

t rev

iew

the

cont

ract

ual c

ompl

ianc

e is

sues

invo

lved

in th

e tr

ansf

er o

f the

dat

abas

e.T

he d

ata

may

be

subj

ect t

o ce

rtai

n pr

ivac

y po

licie

s or

non

disc

losu

re, s

ub-

scrip

tion,

or

end-

user

agr

eem

ents

. As

"Dat

abas

e M

&A

" be

com

es a

mor

eco

mm

on p

ract

ice,

it is

crit

ical

for

M&

A la

wye

rs to

con

side

r th

ese

issu

es a

sth

ey p

lan

for,

neg

otia

te a

nd c

ompl

ete

data

base

tran

sact

ions

.

DU

E D

ILIG

EN

CE

We

are

all a

war

e th

at d

ue d

ilige

nce

of th

e ta

rget

com

pany

's a

sset

spl

ays

an e

ssen

tial r

ole

in e

very

M&

A tr

ansa

ctio

n. In

a tr

ansa

ctio

n w

here

ada

taba

se is

per

ceiv

ed to

be

a si

gnifc

ant a

sset

of t

he ta

rget

com

pany

, how

-ev

er, d

ue d

ilige

nce

mus

t be

cond

ucte

d no

t onl

y w

ith r

espe

ct to

the

data

with

in th

e da

taba

se (

incl

udin

g th

e so

urce

(s)

and

perm

itted

use

s of

the

1. H

ealth

Insu

ranc

e P

orta

bilit

y an

d A

ccou

ntab

ility

Act

, Pub

. L. N

o. 1

04-1

91, 1

10 S

tat

1936

(19

96)

(cod

ified

as

amen

ded

in s

catte

red

sect

ions

of 1

8 U

.S.C

., 26

U.S

.C.,

29 U

.S.C

.an

d 42

U.S

.C.)

.


130

BLO

OM

BE

RG

CO

RP

OR

AT

E L

AW

JO

UR

NA

L[V

ol. 3

:128

data

), b

ut a

lso

with

res

pect

to th

e so

ftwar

e th

at p

erm

its th

e ow

ner

or e

nd-

user

to a

cces

s an

d m

anip

ulat

e th

at d

atab

ase.

The

Sof

twar

e

Fro

m th

e pr

ospe

ctiv

e pu

rcha

ser's

per

spec

tive,

the

inab

ility

of t

he ta

r-ge

t com

pany

to c

onve

y to

the

purc

hase

r le

gal t

itle

to th

e so

ftwar

e(if

owne

d) th

at c

ontr

ols

the

data

base

, or

the

right

for

the

purc

hase

r to

con

-tin

ue to

use

that

sof

twar

e on

the

sam

e te

rms

and

cond

ition

s w

hich

the

targ

et u

sed

it (if

lice

nsed

), w

ould

like

ly h

ave

a m

ater

ial i

mpa

ct o

n th

eva

lue

of th

e da

taba

se to

the

purc

hase

r.

Pro

prie

tary

Sof

twar

e

If th

e so

ftwar

e is

pur

port

ed to

be

owne

d by

the

targ

et, i

ssue

s ty

pica

lof

M&

A tr

ansa

ctio

ns fo

r th

e ac

quis

ition

of s

oftw

are

mus

t be

cons

ider

ed.

For

inst

ance

, due

dili

genc

e m

ust b

e pe

rfor

med

to d

eter

min

e w

heth

er th

eta

rget

com

pany

pro

perly

acq

uire

d ex

clus

ive

owne

rshi

p rig

hts

to th

eso

ftwar

e w

hich

can

be

tran

sfer

red

to th

e pu

rcha

ser.

Cou

nsel

for

the

pur-

chas

er w

ill n

eed

to r

evie

w w

heth

er th

e de

velo

pmen

t of t

he s

oftw

are

was

perf

orm

ed s

olel

y by

bon

a-fid

e em

ploy

ees

of th

e ta

rget

com

pany

(id

eally

each

of w

hom

will

hav

e ex

ecut

ed a

n ef

fect

ive

assi

gnm

ent t

o th

e ta

rget

com

pany

of`

all p

ropr

ieta

ry r

ight

s in

and

to th

e so

ftwar

e), o

r w

heth

er a

llor

any

por

tion

of th

e so

ftwar

e w

as c

reat

ed b

y th

ird-p

arty

inde

pend

ent

deve

lope

rs. T

o th

e ex

tent

third

-par

ty d

evel

oper

s w

ere

enga

ged

by th

e ta

r-ge

t com

pany

, the

pur

chas

er w

ill n

eed

to s

atis

fy it

self

that

eac

h th

ird-p

arty

deve

lope

r (in

clud

ing

each

inde

pend

ent c

ontr

acto

r of

that

third

-par

ty d

e-ve

lope

r) h

as c

onve

yed

to th

e ta

rget

com

pany

all

inte

llect

ual p

rope

rty

right

s in

and

to s

uch

softw

are.

In a

dditi

on, a

s so

ftwar

e de

velo

pmen

t is

incr

easi

ngly

out

sour

ced

to n

on-U

.S. d

evel

oper

s, c

ouns

el to

pur

chas

ers

may

als

o ne

ed to

con

side

r th

e ef

ect f

orei

gn la

ws

may

hav

e on

ow

ners

hip

of th

e so

ftwar

e.Is

sues

con

cern

ing

the

inco

rpor

atio

n of

"op

en-s

ourc

e" o

r go

vern

-m

ent-

fund

ed s

oftw

are

shou

ld a

lso

be c

onsi

dere

d an

d m

ay m

ater

ially

im-

pact

the

valu

e th

e pu

rcha

ser

ascr

ibes

to th

e so

ftwar

e. G

over

nmen

t"m

arch

-in"

right

s m

ay li

mit

the

buye

r's a

bilit

y to

bui

ld o

r ex

pand

its

cus-

tom

er b

ase.

Rel

ianc

e on

"op

en-s

ourc

e" s

oftw

are

may

ope

n th

e w

indo

w fo

rpr

ospe

ctiv

e co

mpe

titor

s to

mor

e re

adily

dev

elop

a d

atab

ase

with

com

pa-

rabl

e fu

nctio

nalit

y.

Thi

rd P

arty

Sof

twar

e

If th

e so

ftwar

e, o

r an

y po

rtio

n th

ereo

f, is

lice

nsed

from

a th

ird p

arty

,th

e pu

rcha

ser

will

nee

d to

car

eful

ly r

evie

w th

e re

leva

nt li

cens

e ag

ree-

men

t(s)

to e

nsur

e its

elf t

hat t

he li

cens

ed s

oftw

are

can

be c

onve

yed

to th

epu

rcha

ser,

and

that

the

cont

inue

d us

e, o

r ex

pand

ed u

se, o

f suc

h lic

ense

dso

ftwar

e by

the

purc

hase

r is

per

mitt

ed u

nder

the

term

s of

suc

h lic

ense

(s);

freq

uent

ly, c

onse

nts

are

requ

ired

to tr

ansf

er th

ese

licen

ses.


2008

] 'D

AT

AB

AS

E M

&A

- W

HA

T'S

DIF

FE

RE

NT

?13

1

Bec

ause

the

third

-par

ty s

oftw

are

is o

ften

"ofth

e-sh

elf'

softw

are

that

is w

idel

y av

aila

ble

to c

omm

erci

al u

sers

on

a no

n-ex

clus

ive

basi

s, it

may

be

impo

ssib

le to

obt

ain

the

nece

ssar

y co

nsen

ts to

ass

ign

the

licen

se. I

n th

ese

case

s, th

e m

ere

fact

that

a n

on-e

xclu

sive

lice

nse

is r

eadi

ly a

vaila

ble

to th

epu

rcha

ser

may

not

be

suffi

cien

t. T

he d

atab

ase

may

rel

y on

a "

cust

omiz

ed"

vers

ion

of th

e so

ftwar

e, in

whi

ch c

ase

the

purc

hase

r w

ill n

eed

to d

uplic

ate

thos

e cu

stom

izat

ions

, and

ens

ure

that

it h

as a

cces

s to

the

reso

urce

s ne

ces-

sary

to m

aint

ain

and

upda

te th

at s

oftw

are

in it

s cu

stom

ized

form

.

Sou

rce

of D

ata

Whe

n an

alyz

ing

the

sour

ce o

f the

dat

a co

mpr

isin

g th

e da

taba

se, p

ur-

chas

er's

cou

nsel

mus

t als

o de

term

ine

whe

ther

the

data

was

com

pile

d by

the

data

base

ow

ner

itsel

f, w

as a

cqui

red

from

one

or

mor

e th

ird p

artie

s in

purc

hase

tran

sact

ions

or

whe

ther

it w

as li

cens

ed fr

om o

ne o

r m

ore

third

part

ies.

To

the

exte

nt th

at d

ata

was

com

pile

d by

the

targ

et c

ompa

ny, t

hepu

rcha

ser

will

nee

d to

ens

ure

itsel

f tha

t the

dat

a w

as la

wfu

lly c

ompi

led

and/

or m

ined

by

the

targ

et c

ompa

ny, i

n co

mpl

ianc

e w

ith a

ny a

pplic

able

regu

latio

ns a

nd a

ny s

ubsc

riptio

n ag

reem

ents

or

"ter

ms

and

cond

ition

s"ap

plic

able

to th

e ta

rget

com

pany

's c

usto

mer

s or

end

-use

rs.

To

the

exte

nt th

at d

ata

was

lice

nsed

from

third

par

ties,

the

rele

vant

licen

se a

gree

men

ts s

houl

d be

rev

iew

ed to

asc

erta

in w

heth

er th

at d

ata

coul

d be

con

veye

d to

the

purc

hase

r in

the

sale

tran

sact

ion,

or

whe

ther

that

dat

a is

sub

ject

to r

estr

ictio

ns o

n us

e th

at w

ould

pre

vent

its

resa

le to

the

purc

hase

r, e

ven

if th

e tr

ansa

ctio

n in

que

stio

n is

a s

ale

of th

e st

ock

ofth

e ta

rget

com

pany

or

subs

tant

ially

all

of th

e as

sets

of t

he ta

rget

(or

of a

part

icul

ar d

ivis

ion

or li

ne o

f bus

ines

s).

Use

of D

ata

Typ

ical

ly, d

ata

is s

ubje

ct to

res

tric

tions

on

use,

acc

ess

and

resa

le,

whe

ther

by

stat

utes

, con

trac

t or

a co

mbi

natio

n of

bot

h.

Sta

tuto

ry R

estr

ictio

ns

The

re a

re s

ever

al s

tatu

tes

that

gov

ern

the

colle

ctio

n, a

cces

s, u

se a

nddi

strib

utio

n of

ele

ctro

nic

data

. For

inst

ance

, priv

ate

heal

th in

form

atio

n is

subj

ect t

o si

gnifc

ant r

estr

ictio

ns o

n its

dis

clos

ure

purs

uant

to H

IPA

A,

whi

le fn

anci

al in

stitu

tions

are

sub

ject

to s

imila

r lim

itatio

ns a

risin

g pu

rsu-

ant t

o th

e G

ram

m-L

each

-Blil

ey A

ct (

Gra

mm

-Lea

ch-B

liley

).2

The

pur

chas

er m

ay n

eed

to s

atis

fy c

erta

in c

riter

ia to

ens

ure

that

it is

law

fully

per

mitt

ed to

rev

iew

and

/or

obta

in th

e da

ta fo

m th

e ta

rget

com

-pa

ny in

acc

orda

nce

with

HIP

AA

or

Gra

mm

-Lea

ch-B

liley

. A d

iscu

ssio

n of

HIP

AA

, Gra

mm

-Lea

ch-B

liley

and

oth

er s

tatu

tes

whi

ch m

ust b

e co

nsid

-

2. G

ram

m-L

each

-Blil

ey A

ct, P

ub. L

. No.

106

-102

, 113

Sta

t. 13

38 (

1999

)(c

odife

d as

amen

ded

in s

catte

red

sect

ions

of 1

2 U

.S.C

. and

15

U.S

.C.)

.


132

BLO

OM

BE

RG

CO

RP

OR

AT

E L

AW

JO

UR

NA

L[V

ol. 3

:128

ered

in th

e co

ntex

t of d

atab

ase

acqu

isiti

ons

is s

et fo

rth

belo

w in

the

sec-

tion

entit

led

"Reg

ulat

ory

Com

plia

nce.

"

Con

trac

tual

Res

tric

tions

Dat

a m

ay a

lso

be s

ubje

ct to

res

tric

tions

on

its u

se a

nd r

esal

e by

con

-tr

acts

gov

erni

ng th

e co

llect

ion

and

use

of s

uch

data

. Typ

ical

ly, w

ebsi

tepr

ivac

y po

licie

s an

d "t

erm

s of

use

" co

mm

it co

llect

ors

of d

ata

to c

erta

inre

stric

tions

on

re-u

se. S

imila

rly, t

he te

rms

of a

ny c

ontr

acts

ent

ered

into

with

mor

e tr

aditi

onal

sup

plie

rs o

f dat

a, s

uch

as m

edia

com

pani

es a

ndda

ta a

ggre

gato

rs, a

nd th

e te

rms

and

cond

ition

s to

whi

ch c

usto

mer

s of

the

targ

et c

ompa

ny a

gree

whe

n pr

ovid

ing

pers

onal

info

rmat

ion,

may

con

tain

priv

acy

and/

or o

ther

res

tric

tions

on

the

use

or fu

rthe

r di

sclo

sure

of s

uch

data

that

are

bin

ding

on

the

targ

et c

ompa

ny.

In a

dditi

on, i

f the

se c

ontr

acts

con

tain

abs

olut

e re

stric

tions

on

disc

lo-

sure

of s

uch

data

to th

ird p

artie

s, th

en, u

nles

s an

exc

eptio

n. is

con

tain

edth

erei

n fo

r di

sclo

sure

to a

pro

spec

tive

purc

hase

r of

the

targ

et c

ompa

nyor

its

asse

ts, e

ven

the

prel

imin

ary

step

of d

iscl

osin

g th

e da

ta to

the

pro-

spec

tive

purc

hase

r of

the

data

base

in th

e du

e di

ligen

ce p

roce

ss m

ay b

epr

oble

mat

ic a

nd r

esul

t in

a te

chni

cal b

reac

h of

the

appl

icab

le a

gree

men

t.F

rom

the

pers

pect

ive

of c

ouns

el to

a c

ompa

ny w

hich

is e

nter

ing

into

ar-

rang

emen

ts to

acq

uire

dat

a fr

om th

ird p

artie

s, b

y lic

ense

or

othe

rwis

e, it

is im

port

ant f

or a

ny s

uch

licen

se o

r ac

quis

ition

agr

eem

ent t

o ex

pres

sly

perm

it di

sclo

sure

in th

e co

ntex

t of a

pot

entia

l sal

e of

the

busi

ness

.T

he r

ight

of t

he p

urch

aser

to a

cces

s an

d us

e th

e da

ta c

onta

ined

with

in th

e da

taba

se w

ill b

e de

term

ined

afte

r co

nsid

erat

ion

of a

num

ber

of fa

ctor

s. A

s ill

ustr

ated

abo

ve, f

rst i

t mus

t. be

det

erm

ined

if th

e pu

r-ch

aser

is p

erm

itted

, in

acco

rdan

ce w

ith a

pplic

able

law

and

con

trac

tual

rest

rictio

ns, t

o ac

quire

the

data

and

use

it e

ither

in th

e co

ntin

uatio

n of

the

exis

ting

busi

ness

of t

he ta

rget

com

pany

or

in a

use

whi

ch is

an

exte

n-si

on o

f tha

t bus

ines

s or

a "

new

" bu

sine

ss a

ltoge

ther

. Tha

t is,

is th

e pu

r-ch

aser

's in

tend

ed u

se o

f the

dat

a al

so p

erm

itted

in a

ccor

danc

e w

ith a

ppli-

cabl

e st

atut

es a

nd c

ontr

actu

al r

estr

ictio

ns a

pplic

able

to th

e da

ta.

IP C

OV

ER

AG

E

The

sal

e or

oth

er d

ispo

sitio

n of

a d

atab

ase

will

impl

icat

e in

telle

ctua

lpr

oper

ty r

ight

s. If

the

data

is c

over

ed b

y co

pyrig

hts,

reg

istr

atio

n of

thos

eco

pyrig

hts

may

or

may

not

be

an is

sues

The

dat

a m

ay a

ltern

ativ

ely

cons

ti-tu

te tr

ade

secr

ets.

In th

e U

nite

d S

tate

s, tr

ade

secr

ets

are

a cr

eatu

re o

fst

ate

com

mon

and

sta

tuto

ry la

w. A

trad

e se

cret

is g

ener

ally

def

ned

asno

n-pu

blic

info

rmat

ion

that

has

eco

nom

ic v

alue

by

virt

ue o

f its

not

bei

ngge

nera

lly k

now

n an

d no

t bei

ng e

asily

det

erm

ined

by

othe

rs to

who

m it

s

3. B

road

ly s

peak

ing,

cop

yrig

ht c

over

s an

y or

igin

al w

ork

of a

utho

rshi

p th

at is

fxed

in a

tang

ible

med

ium

of e

xpre

ssio

n(s

ee,

17U

.S.C

.§

102

(200

6));

how

ever

, in

the

Uni

ted

Sta

tes,

the

abili

ty to

enf

orce

the

copy

right

in le

gal p

roce

edin

gs r

equi

res

that

the

copy

right

be r

egis

tere

d.17

U.S

.C. §

411

(a)

(200

6).


2008

]D

AT

AB

AS

E M

&A

- W

HA

T'S

DIF

FE

RE

NT

?13

3

disc

losu

re w

ould

hav

e va

lue,

and

the

furt

her

diss

emin

atio

n of

whi

ch is

both

lim

ited

and

prot

ecte

d by

the

reas

onab

le e

ffort

s of

thos

e w

ho c

ontr

olit.

4In

rar

e ca

ses,

the

softw

are

that

is u

sed

with

a d

atab

ase

may

be

pro-

tect

ed b

y pa

tent

s or

, per

haps

mor

e lik

ely,

may

be

the

subj

ect o

f one

or

mor

e pe

ndin

g pa

tent

app

licat

ions

. Thi

s ra

ises

con

cern

s re

gard

ing

the

re-

lianc

e up

on, a

nd li

kely

the

scop

e an

d en

forc

eabi

lity

of th

ose

pate

nts.

5

Cop

yrig

ht

In F

eist

Pub

licat

ions

, Inc

. v. R

ural

El.

Ser

u. C

o.,6

the

Sup

rem

e C

ourt

dete

rmin

ed th

at d

atab

ases

them

selv

es a

re n

ot in

here

ntly

"or

igin

al"

copy

-rig

htab

le w

orks

. Thu

s, a

ggre

gatio

ns o

f dat

a ca

nnot

be

prot

ecte

d by

cop

y-rig

ht if

the

data

itse

lf is

inca

pabl

e of

alte

rnat

ive

mea

ns o

f exp

ress

ion.

By

way

of e

xam

ple,

ther

e is

onl

y on

e w

ay to

iden

tify

a pa

rtic

ular

per

son'

sso

cial

sec

urity

num

ber,

whe

reas

ther

e ar

e in

finite

way

s to

des

crib

e, in

wor

ds, a

per

son'

s w

ork

expe

rienc

e. A

s a

resu

lt, c

opyr

ight

pro

tect

ion

for

ada

taba

se c

onsi

stin

g so

lely

of i

ndiv

idua

l nam

es, e

ach

mat

ched

with

the

in-

divi

dual

's s

ocia

l sec

urity

num

ber,

will

pro

babl

y no

t be

avai

labl

e, w

here

as a

data

base

con

sist

ing

of n

arra

tive

desc

riptio

ns o

f the

wor

k ex

perie

nce

ofth

ose

sam

e in

divi

dual

s m

ay w

ell b

e pr

otec

tabl

e.E

ven

if a

data

base

is c

apab

le o

f cop

yrig

ht p

rote

ctio

n, it

is n

eces

sary

to r

egis

ter

the

copy

right

in o

rder

to' e

nfor

ce it

aga

inst

alle

ged

infr

inge

rs.

In m

any

case

s, th

e va

lue

of a

dat

abas

e is

inex

tric

ably

tied

to th

e fa

ct th

at it

is a

trad

e se

cret

, or

is o

ther

wis

e no

t wid

ely

avai

labl

e to

the

publ

ic. R

egis

-tr

atio

n of

the

copy

right

req

uire

s, w

ith li

mite

d ex

cept

ions

, pub

lic d

iscl

o-su

re o

f the

con

tent

s of

that

cop

yrig

ht. A

s a

resu

lt, m

any

data

base

bus

i-ne

sses

lim

it, o

r av

oid

alto

geth

er, r

egis

trat

ion

of th

e co

pyrig

ht in

thei

rda

taba

ses.

In th

e U

nite

d S

tate

s, e

fort

s to

pas

s st

atut

es o

ferin

g co

pyrig

ht o

rco

mpa

rabl

e pr

otec

tion

for

data

base

s, w

ithou

t req

uirin

g th

e ne

cess

ary

copy

right

ele

men

t of o

rigin

ality

(i.e

., in

form

atio

n th

at is

cap

able

of b

eing

expr

esse

d in

'mul

tiple

way

s), h

ave

not y

et s

ucce

eded

. In

man

y ca

ses,

how

-ev

er, a

pro

spec

tive

purc

hase

r an

ticip

ates

exp

loiti

ng th

e da

taba

se o

n a

wor

ld-w

ide

basi

s. A

ccor

ding

ly, a

pro

spec

tive

purc

hase

r's c

ouns

el m

ust

also

con

side

r in

telle

ctua

l pro

pert

y pr

otec

tion

in o

ther

juris

dict

ions

. In

Eur

ope,

the

1996

Eur

opea

n U

nion

Dat

abas

e D

irect

ive7

intr

oduc

ed a

sui

gene

ris "

swea

t of t

he b

row

" co

ncep

t to

prot

ect t

he e

fort

put

into

com

pil-

4. S

ee, e

.g, U

NIF

OR

M T

RA

DE

SE

CR

ET

S A

CT

§ 1

(4),

14 U

.L.A

.40

2-03

(198

5&

Sup

p.19

90)

(def

inin

g "t

rade

sec

ret"

).5.

See

, e.g

, In

re A

lapp

at,

33 F

.3d

1526

(F

ed. C

ir.19

94).

Gen

eral

ly, i

n or

der

to b

epa

tent

able

, sof

twar

e m

ust c

ause

a c

ompu

ter

(i.e.

, a m

achi

ne)

to d

o so

met

hing

it c

anno

tot

herw

ise

do; t

he s

oftw

are

"cre

ates

a n

ew m

achi

ne"

beca

use,

as

a re

sult

of th

e ne

wpr

ogra

mm

ing,

"a

gene

ral p

urpo

se c

ompu

ter

in e

fct b

ecom

es a

spe

cial

pur

pose

com

pute

ron

ce it

is p

rogr

amm

ed to

per

form

par

ticul

ar fu

nctio

ns fr

om p

rogr

am s

oftw

are"

Id. a

t 156

6.6.

499

U.S

. 340

(19

91).

7. D

irect

ive

96/9

/EC

of t

he E

urop

ean

Par

liam

ent a

nd o

f the

Cou

ncil

of 1

1 M

arch

1996

on

the

Lega

l Pro

tect

ion

of D

atab

ases

, 199

6 0J

. (L

77)

20.


134

BLO

OM

BE

RG

CO

RP

OR

AT

E L

AW

JO

UR

NA

L[V

ol. 3

:128

ing

data

base

s.8

The

Dire

ctiv

e pr

ovid

es a

ffte

en y

ear

copy

right

type

pro

-te

ctio

n fo

r da

taba

ses

so lo

ng a

s th

e da

taba

se m

eets

ver

y ba

sic

crite

ria,

subj

ect t

o co

ntin

uous

ren

ewal

for

each

new

"su

bseq

uent

inve

stm

ent"

into

the

cont

ents

or

form

at o

f the

dat

abas

e. A

s w

ith g

ener

al c

opyr

ight

, it i

sim

port

ant t

o ap

prec

iate

that

this

pro

tect

ion

does

not

ext

end

to th

e tr

ade

secr

et e

lem

ents

of a

dat

abas

e.

Tra

de S

ecre

t Rig

hts

To

the

exte

nt a

dat

abas

e th

at is

the

subj

ect o

f an

acqu

isiti

on tr

ansa

c-tio

n is

not

wid

ely

diss

emin

ated

and

con

sist

s of

non

-pub

lic in

form

atio

nac

cess

to w

hich

req

uire

s th

at th

e us

er a

gree

to m

aint

ain

the

data

base

inco

nfid

ence

, tha

t dat

abas

e is

a q

uint

esse

ntia

l for

m o

f tra

de s

ecre

t. T

his

isbe

caus

e th

e m

ere

fact

of p

aym

ent o

f con

side

ratio

n to

acq

uire

the

data

base

est

ablis

hes

that

, at l

east

in th

e pu

rcha

ser's

eye

, the

dat

abas

e ha

sec

onom

ic v

alue

. Mos

t lar

ge M

&A

tran

sact

ions

for

data

base

s ha

ve a

sig

nifi-

cant

trad

e se

cret

ele

men

t.A

dat

abas

e th

at is

pro

tect

ed a

s a

trad

e se

cret

affo

rds

the

owne

r th

elim

ited

prot

ectio

n of

a r

ight

to s

eek

mon

etar

y da

mag

es a

gain

st th

ose

who

mis

appr

opria

te th

e tr

ade

secr

et a

nd, i

n m

any

case

s, a

rig

ht to

enj

oin

fur-

ther

una

utho

rized

dis

clos

ure

of th

e re

leva

nt tr

ade

secr

et. I

t is.

criti

cal t

oap

prec

iate

, how

ever

, tha

t onc

e pu

blic

ly d

isse

min

ated

, the

abi

lity

to r

egai

nco

ntro

l of t

he r

elev

ant d

ata

may

be

impo

ssib

le, p

artic

ular

ly in

ligh

t of t

hesp

eed

with

whi

ch d

ata

can

be d

istr

ibut

ed v

ia th

e In

tern

et a

nd o

ther

mea

ns o

f tel

ecom

mun

icat

ions

.In

ord

er to

rel

y on

trad

e se

cret

law

s to

pro

tect

that

dat

abas

e, th

eow

ner

will

hav

e to

take

rea

sona

ble

step

s to

mai

ntai

n th

e co

nfde

ntia

lity

ofth

e da

taba

se. T

ypic

ally

, thi

s is

acc

ompl

ishe

d w

ith a

sub

scrip

tion

agre

e-m

ent,

term

s an

d co

nditi

ons

or o

ther

bin

ding

agr

eem

ent b

etw

een

the

owne

r an

d th

e en

d-us

er. T

hese

agr

eem

ents

will

typi

cally

iden

tify,

and

pro

-hi

bit f

urth

er d

iscl

osur

e of

, con

fden

tial i

nfor

mat

ion

cont

aine

d in

the

data

base

, and

pro

hibi

t rev

erse

eng

inee

ring,

dec

ompi

ling

or o

ther

tech

-ni

ques

for

disc

over

ing

the

sour

ce c

ode

for

prop

rieta

ry s

oftw

are

incl

uded

in th

e da

taba

se. H

owev

er, e

ven

with

cus

tom

ary

limita

tions

on

furt

her

dis-

clos

ure,

the

disc

losu

re o

f tra

de s

ecre

ts to

a la

rge

enou

gh a

udie

nce

may

erod

e th

e ne

cess

ary

elem

ent o

f sec

recy

and

lim

it or

des

troy

the

enfo

rce-

abili

ty o

f a c

laim

of t

rade

sec

ret s

tatu

s.9

8. Id

. Art

icle

3 o

f the

Dire

ctiv

e st

ates

that

"da

taba

ses

whi

ch, b

y re

ason

of t

he s

elec

tion

or a

rran

gem

ent o

f the

ir co

nten

ts, c

onst

itute

the

auth

or's

ow

n in

telle

ctua

l cre

atio

n sh

all b

epr

otec

ted

as s

uch

by c

opyr

ight

."9.

The

Res

tate

men

t, re

gard

ing

the

impo

rtan

ce o

f sec

recy

to tr

ade

secr

et s

tatu

s, s

tate

s:[T

]he

subj

ect m

atte

r of

a tr

ade

secr

et m

ust b

e se

cret

...M

atte

rs o

f whi

ch a

reco

mpl

etel

y di

sclo

sed

by th

e go

ods

whi

ch o

ne m

arke

ts c

anno

t be

secr

et.

Oth

ers

may

als

o kn

ow o

f it i

ndep

ende

ntly

, as,

for

exam

ple,

whe

n th

ey h

ave

disc

over

ed th

e pr

oces

s or

form

ula

by in

depe

nden

t inv

entio

n an

d ar

e ke

epin

g it

secr

et. N

ever

thel

ess,

a s

ubst

antia

l ele

men

t of s

ecre

cy m

ust e

xist

, so

that

, exc

ept b

y

the

use

of im

prop

er m

eans

, the

re w

ould

be

diffi

culty

in a

cqui

ring

the

info

rmat

ion.


2008

]D

AT

AB

AS

E M

&A

- W

HA

T'S

DIF

FE

RE

NT

?13

5

In th

e U

nite

d S

tate

s, tr

ade

secr

et p

rote

ctio

n is

, for

the

mos

t par

t,de

rived

from

a m

ix o

f com

mon

-law

prin

cipl

es a

nd in

divi

dual

sta

te la

ws.

10M

ost s

tate

s ha

ve a

dopt

ed th

e U

nifo

rm T

rade

Sec

rets

Act

(th

e U

TS

A),

or

a m

odife

d ve

rsio

n of

the

UT

SA

.11

As

a re

sult,

a p

rosp

ectiv

e pu

rcha

ser

shou

ld n

ot a

ssum

e th

at th

e tr

ade

secr

et s

tatu

s of

a d

atab

ase

is s

ecur

eba

sed

on g

ener

al p

rinci

ples

or

pre-

clos

ing

due

dilig

ence

; rat

her,

the

buye

r sh

ould

be

prep

ared

to d

evot

e th

e tim

e an

d ef

fort

nec

essa

ry to

un-

ders

tand

how

, if a

t all,

the

prim

ary

feat

ures

of t

rade

sec

ret p

rote

ctio

n in

the

juris

dict

ion

whe

re th

e bu

yer

inte

nds

to c

ondu

ct it

s bu

sine

ss d

ifer

from

the

juris

dict

ion

whe

re th

e bu

sine

ss w

as p

revi

ousl

y co

nduc

ted.

It m

aybe

that

dife

renc

es in

sta

te la

w w

ill r

equi

re c

hang

es in

the

way

the

busi

-ne

ss is

con

duct

ed a

fter

the

tran

sact

ion

is c

lose

d.

Pat

ent R

ight

s

As

indi

cate

d ab

ove,

dat

abas

es a

re r

arel

y (if

eve

r) p

rote

cted

by

pat-

ents

. The

con

tent

s of

the

data

base

them

selv

es a

re n

ot p

aten

tabl

e su

bjec

tm

atte

r.12

It is

, how

ever

, pos

sibl

e to

pat

ent s

oftw

are.

ls A

s a

resu

lt, p

ur-

chas

er's

cou

nsel

sho

uld

be a

ttune

d to

the

poss

ibili

ty (

thou

gh u

nlik

ely)

that

the

softw

are

used

with

a d

atab

ase

is c

over

ed b

y on

e or

mor

e pa

tent

sor

is th

e su

bjec

t of o

ne o

r m

ore

pend

ing

pate

nt a

pplic

atio

ns. I

f ada

taba

se's

sof

twar

e is

cov

ered

by

one

or m

ore

issu

ed p

aten

ts, t

hat p

rote

c-tio

n ca

n be

ver

y va

luab

le. I

t afo

rds

the

pate

nt h

olde

r a

perio

d of

yea

rs(o

rdin

arily

, tw

enty

from

the

date

the

pate

nt a

pplic

atio

n is

firs

t fle

d) d

ur-

ing

whi

ch it

can

pre

vent

oth

ers

from

pra

ctic

ing

the

pate

nted

inve

ntio

nw

ithou

t its

perm

issi

on.1

4M

any

new

bus

ines

ses

like

to tr

umpe

t pen

ding

pat

ent a

pplic

atio

ns a

sa

mea

ns o

f ent

icin

g in

vest

men

t. A

s a

quic

k re

view

of t

he "

Ris

k F

acto

rs"

sect

ion

of a

ny p

rivat

e pl

acem

ent m

emor

andu

m o

r an

y F

orm

S-1

fled

with

the

SE

C w

ill r

evea

l, ho

wev

er, t

he m

ere

exis

tenc

e of

a p

endi

ng p

aten

t ap-

plic

atio

n, o

r ev

en a

pat

ent,

does

not

nec

essa

rily

prov

ide

usef

ul o

r ro

bust

prot

ectio

n. A

pur

chas

er w

ill s

till n

eed

to d

eter

min

e w

heth

er a

ny e

xist

ing

pate

nts

in fa

ct c

over

the

softw

are

that

is u

sed

with

the'

dat

abas

e an

d, if

so,

whe

ther

thos

e pa

tent

s ar

e va

lid a

nd e

nfor

ceab

le. S

imila

rly, i

f the

pro

tec-

tion

is a

ttrib

utab

le to

pen

ding

pat

ent a

pplic

atio

ns, r

athe

r th

an a

n is

sued

pate

nt, t

he s

tatu

s of

that

pen

ding

app

licat

ion

will

nee

d to

be

eval

uate

d;

RE

ST

AT

EM

EN

T O

F T

OR

TS

§ 7

57 (

1939

).

10. S

ee J

ER

RY

CO

HE

N &

ALA

N S

. Gu=

RM

AN

, TR

AD

E S

EC

RE

TS

PR

OT

EC

TIO

N A

ND

EX

PLO

ITA

TIO

N 6

9 (B

urea

u of

Nat

iona

l Affa

irs 1

998)

.11

. The

UT

SA

has

bee

n ad

opte

d in

fort

y-fv

e st

ates

. Onl

y M

assa

chus

etts

, New

Jer

sey,

New

Yor

k, N

orth

Car

olin

a an

d T

exas

hav

e no

t ado

pted

the

UT

SA

, or

som

e va

riatio

nth

ereo

f.12

. Pat

enta

ble

subj

ect m

atte

r is

lim

ited

to p

roce

sses

, mac

hine

s, m

etho

ds o

fm

anuf

actu

re a

nd c

ompo

sitio

ns o

f mat

ters

. See

35

U.S

.C. §

101

(20

06).

Mer

e de

scrip

tions

of

thos

e pr

oces

ses,

mac

hine

s, m

etho

ds a

nd c

ompo

sitio

ns a

re n

ot c

over

ed b

y th

e pa

tent

.13

. See

In r

e A

lapp

at, 3

3 F

.3d

1526

.14

.35

U.S

.C. §

§ 15

4 an

d 28

3.


136

BLO

OM

BE

RG

CO

RP

OR

AT

E L

AW

JO

UR

NA

L[V

ol. 3

:128

the

sim

ple

fling

of a

n ap

plic

atio

n by

no

mea

ns a

ford

s an

y as

sura

nce

that

a pa

tent

will

in fa

ct b

e is

sued

.

RE

GU

LAT

OR

Y C

OM

PLI

AN

CE

.

Law

yers

in d

atab

ase

tran

sact

ions

sho

uld

be a

war

e of

dife

rent

reg

ula-

tory

com

plia

nce

issu

es d

epen

ding

on

the

data

base

, or

mor

e sp

ecifc

ally

,th

e ty

pes

of d

ata

com

pris

ing

the

data

base

. Thi

s se

ctio

n w

ill d

iscu

ss a

few

,bu

t by

no m

eans

all,

of t

he s

tatu

tes

that

may

app

ly in

cer

tain

situ

atio

ns,

incl

udin

g H

IPA

A, G

ram

m-L

each

Blil

ey, t

he F

air

Cre

dit a

nd R

epor

ting

Act

15(F

RC

A)

and

the

Chi

ldre

n's

Onl

ine

Priv

acy

Pro

tect

ion

Act

16(C

OP

PA

).

HIP

AA As

brie

fly d

iscu

ssed

abo

ve, H

IPA

A p

rote

cts

the

priv

acy

of c

onsu

mer

heal

th in

form

atio

n by

est

ablis

hing

priv

acy

and

secu

rity

stan

dard

s to

guar

d ag

ains

t ina

ppro

pria

te u

ses

and

disc

losu

re o

f suc

h in

form

atio

nw

hen

it is

sto

red

or tr

ansm

itted

ele

ctro

nica

lly. H

IPA

A r

egul

ates

how

cer

-ta

in "

cove

red

entit

ies"

han

dle

indi

vidu

ally

iden

tifia

ble

heal

th in

form

a-tio

n, c

alle

d "p

rote

cted

hea

lth in

form

atio

n" (

PH

I).1

7 T

he h

ealth

info

rma-

tion

is c

onsi

dere

d P

HI i

f it c

an, o

r re

ason

ably

cou

ld, i

dent

ify a

nin

divi

dual

. Doc

tors

, pha

rmac

ists

, hos

pita

ls, d

rug

com

pani

es, h

ealth

insu

r-er

s, a

nd c

ompa

nies

that

sup

port

the

heal

thca

re in

dust

ry c

omm

only

sto

rean

d pr

oces

s P

HI u

sing

sop

hist

icat

ed d

atab

ases

. The

se d

atab

ases

can

be

very

val

uabl

e to

the

heal

thca

re in

dust

ry.

HIP

AA

thor

ough

ly r

egul

ates

how

PH

I is

stor

ed a

nd tr

ansm

itted

, and

to w

hom

it is

dis

clos

ed. G

ener

ally

, HIP

AA

pro

hibi

ts th

e di

sclo

sure

of P

HI

to p

erso

ns o

r en

titie

s th

at d

o no

t qua

lify

as e

ither

"co

vere

d en

titie

s" (

i.e.,

heal

th c

are

prov

ider

s, h

ealth

pla

ns a

nd h

ealth

care

cle

arin

ghou

ses

who

tran

smit

PH

I ele

ctro

nica

lly)

or "

busi

ness

ass

ocia

tes"

(i.e

., pr

ovid

ers

of a

d-m

inis

trat

ive

serv

ices

to c

over

ed e

ntiti

es)

unle

ss th

at P

HI h

as b

een

"de-

iden

tifie

d" (

i.e.,

rend

ered

ano

nym

ous)

.18

Bef

ore

PH

I can

be

disc

lose

d to

any

othe

r pe

rson

s, it

mus

t be

"de-

iden

tifed

."19

The

de-

iden

tific

atio

n pr

o-ce

ss c

an b

e bu

rden

som

e, r

equi

ring

eith

er th

e sp

ecifc

del

etio

n of

eig

h-te

en e

num

erat

ed p

erso

nal "

iden

tifie

rs"

from

the

PH

I, or

the

encr

yptio

nof

the

PH

I int

o a

form

that

can

not b

e re

adily

re-

iden

tifed

, as

esta

blis

hed

by s

tatis

tical

ana

lysi

s.20

15. T

he F

air

Cre

dit a

nd R

epor

ting

Act

, 15

U.S

.C. §

168

1 (2

006)

.16

. The

Chi

ldre

n's

Onl

ine

Priv

acy

Pro

tect

ion

Act

, 15

U.S

.C. §

§ 65

01-6

506

(200

6).

17.

45 C

.F.R

. § 1

60.1

03 (

2005

); 4

5 C

.F.R

. § 1

64.3

02 (

2005

).18

. Id.

§ 16

0.10

3 (2

005)

19. I

d.§

164.

514

(200

5)

20. I

d. §

164

.514

(b)

(200

5)


2008

1D

AT

AB

AS

E M

&A

- W

HA

T'S

DIF

FE

RE

NT

?13

7

Gra

mm

-Lea

ch-B

liley

and

the

Fai

r C

redi

t Rep

ortin

g A

ct

Gra

mm

-Lea

ch-B

liley

allo

ws

com

mer

cial

and

inve

stm

ent b

anks

toco

nsol

idat

e, e

fect

ivel

y re

peal

ing

the

Gla

ss-S

teal

Act

. Of p

artic

ular

not

efo

r th

is a

rtic

le, G

ram

m-L

each

-Blil

ey c

onta

ins

a pr

ivac

y ru

le to

pro

tect

cons

umer

info

rmat

ion

colle

cted

by

fnan

cial

inst

itutio

ns.2

1 T

he fn

anci

alpr

ivac

y ru

le m

anda

tes

that

the

finan

cial

inst

itutio

n m

aint

ain

a pr

ivac

y po

l-ic

y pr

otec

ting

the

cons

umer

's n

onpu

blic

info

rmat

ion.

22 A

dditi

onal

ly,

Gra

mm

-Lea

ch-B

liley

req

uire

s fn

anci

al in

stitu

tions

to p

rovi

de th

eir

clie

nts

with

a p

rivac

y no

tice

expl

aini

ng w

hat i

nfor

mat

ion

abou

t the

clie

nt th

ein

stitu

tion

has,

whe

n an

d if

the

info

rmat

ion

is s

hare

d, a

nd th

e ty

pes

ofsa

fegu

ards

in p

lace

to p

rote

ct th

at in

form

atio

n.23

The

Fai

r C

redi

t and

Rep

ortin

g A

ct (

FC

RA

) re

quire

s th

at th

e pr

ivac

yno

tice

expl

ain

to th

e co

nsum

er h

er r

ight

to "

opt-

out"

of t

he d

isse

min

a-tio

n of

her

fnan

cial

info

rmat

ion

to th

ird p

artie

s.24

The

FC

RA

itse

lf re

gu-

late

s th

e co

llect

ion

and

repo

rtin

g of

con

sum

er c

redi

t inf

orm

atio

n, a

ndre

gula

tes

cred

it re

port

ing

com

pani

es. H

owev

er, t

he F

RC

A m

ay a

pply

toco

mpi

lers

of d

atab

ases

who

wou

ld n

ot d

escr

ibe

them

selv

es a

s cr

edit

re-

port

ing

com

pani

es, b

ut w

ho c

olle

ct s

imila

r in

form

atio

n an

d di

strib

ute

enou

gh in

form

atio

n co

vere

d by

the

FR

CA

to fa

ll w

ithin

the

purv

ew o

fth

e st

atut

e.G

ram

m-L

each

-Blil

ey a

nd th

e F

CR

A a

pply

to D

atab

ase

M&

A. d

eals

in a

sim

ilar

way

as

HIP

AA

. As

with

HIP

AA

, bot

h pa

rtie

s m

ust b

e ca

refu

l to

know

the

cont

ents

of t

he r

elev

ant d

atab

ase,

mak

e su

re th

at d

iscl

osur

e of

the

data

to th

e pu

rcha

ser

is a

utho

rized

und

er G

ram

m-L

each

-Blil

ey a

ndth

e F

CR

A, a

nd e

nsur

e th

at P

urch

aser

's in

tend

ed u

se o

f the

dat

a w

ill a

lso

be in

com

plia

nce

with

thes

e st

atut

es.

Chi

ldre

n's

Onl

ine

Priv

acy

Pro

tect

ion

Act

The

Chi

ldre

n's

Onl

ine

Priv

acy

Pro

tect

ion

Act

(C

OP

PA

) ap

plie

s to

the

onlin

e co

llect

ion

of in

form

atio

n re

latin

g to

chi

ldre

n un

der

thirt

een

year

s of

age

.25

CO

PP

A im

pose

s up

on w

ebsi

te o

pera

tors

a d

uty

to p

rote

ctth

e sa

fety

and

priv

acy

of y

oung

chi

ldre

n, a

nd. i

dent

ifes

whe

n ex

pres

s co

n-se

nt m

ust b

e ob

tain

ed fr

om a

par

ent o

r gu

ardi

an b

efor

e th

at in

form

atio

nca

n be

col

lect

ed o

r di

ssem

inat

ed, a

nd im

pose

s re

stric

tions

on

the

type

of

mar

ketin

g th

at m

ay b

e di

rect

ed a

t you

ng c

hild

ren.

26 S

imila

r to

the

stat

-ut

es d

iscu

ssed

pre

viou

sly,

CO

PP

A r

aise

s re

gula

tory

com

plia

nce

issu

es in

data

base

tran

sact

ions

whe

n da

taba

ses

cont

ain

info

rmat

ion

colle

cted

from

the

onlin

e ac

tivity

of c

hild

ren

unde

r th

irtee

n.

21.

15 U

.S.C

.§§

6801

-680

9 (2

006)

.22

. Id.

§ 68

02 (

2006

).23

. Id.

§ 68

03 (

2006

).24

. Id.

§ 68

02(b

)(2

006)

.

25. S

ee id

. §§

6501

-650

6 (2

006)

.26

. Id.

§ 6

502(

b)(2

006)

.


138

BLO

OM

BE

RG

CO

RP

OR

AT

E L

AW

JO

UR

NA

L[V

ol. 3

:128

Incr

easi

ngly

, com

mer

cial

ly v

alua

ble

data

base

s in

clud

e da

ta a

ggre

-ga

ted

from

use

rs o

f web

site

s. W

hen

thos

e w

ebsi

tes

targ

et c

hild

ren

unde

rth

irtee

n, o

r ar

e kn

own

to h

ave

user

s w

ho a

re u

nder

thirt

een,

the

use

and

diss

emin

atio

n of

that

dat

a is

gov

erne

d by

CO

PP

A.2

7 O

wne

rs o

f dat

a go

v-er

ned

by C

OP

PA

mus

t not

onl

y pr

otec

t aga

inst

una

utho

rized

use

and

dist

ribut

ion

of th

at d

ata,

but

mus

t als

o be

pre

pare

d to

del

ete

or o

ther

wis

ede

stro

y an

y su

ch d

ata

upon

the

requ

est o

f a p

aren

t or

guar

dian

of t

hech

ild to

who

m s

uch

data

rel

ates

.28

If th

at d

ata

is s

tore

d in

a d

atab

ase

that

is u

tiliz

ed a

s pa

rt o

f the

ope

ratio

n an

d m

aint

enan

ce o

f a w

ebsi

te d

irect

edto

chi

ldre

n un

der

thirt

een,

the

web

site

itse

lf m

ust a

lso

incl

ude

func

tiona

l-ity

nec

essa

ry to

allo

w p

aren

ts o

f use

rs u

nder

thirt

een

to le

arn

wha

t inf

or-

mat

ion

abou

t the

ir ch

ildre

n is

sto

red

in th

e da

taba

se, a

nd to

rev

ise

orde

lete

that

dat

a.29

CO

NT

RA

CT

UA

L C

OM

PLI

AN

CE

Sim

ilar

to th

e in

telle

ctua

l pro

pert

y an

d re

gula

tory

com

plia

nce

issu

esdi

scus

sed

abov

e, d

atab

ase

tran

sact

ions

als

o ra

ise

cont

ract

ual c

ompl

ianc

eis

sues

. Man

y da

taba

ses

are

asse

mbl

ed th

roug

h co

ntra

cts

allo

win

g th

eda

taba

se d

evel

oper

to in

corp

orat

e in

to th

e da

taba

se p

artic

ular

dat

a or

aggr

egat

ions

of d

ata.

Suc

h co

ntra

cts

incl

ude

web

site

priv

acy

polic

ies

and

"ter

ms

of u

se,"

non

disc

losu

re a

gree

men

ts a

nd tr

aditi

onal

con

trac

ts p

ursu

-an

t to

whi

ch d

ata

aggr

egat

ors

(e.g

., fin

anci

al in

stitu

tions

) pr

ovid

e da

ta to

com

pile

rs a

nd d

istr

ibut

ors

of th

at d

ata

(e.g

., cr

edit

repo

rtin

g ag

enci

es).

On

the

oppo

site

sid

e of

the

proc

ess,

whe

n co

mm

erci

aliz

ing

a da

taba

se, i

tis

usu

ally

sub

ject

to s

ome

form

of d

istr

ibut

ion,

sub

scrip

tion

or o

ther

agre

emen

t bet

wee

n th

e ow

ner

of th

e da

taba

se a

nd th

e en

d-us

ers

of th

atda

taba

se. I

n ei

ther

cas

e, it

is im

port

ant t

o av

oid

mak

ing

the

assu

mpt

ion

that

, sim

ply

beca

use

data

is in

clud

ed in

a d

atab

ase,

ther

e ar

e no

con

trac

-tu

al r

estr

ictio

ns o

n its

re-

use

or d

iscl

osur

e.

Dat

a S

ourc

ing

Con

trac

ts

Eve

n if

the

aggr

egat

ion,

use

or

diss

emin

atio

n of

par

ticul

ar d

ata

is n

otsu

bjec

t to

regu

latio

n, th

e en

tity

acqu

iring

that

dat

a m

ay v

ery

wel

l ent

erin

to c

ontr

acts

that

res

tric

t or

othe

rwis

e lim

it ho

w th

at d

ata

is s

ubse

-qu

ently

sto

red,

acc

esse

d, r

e-us

ed o

r di

sclo

sed

to o

ther

s. S

omet

imes

, the

data

is p

rovi

ded

by in

divi

dual

con

sum

ers.

Per

haps

the

mos

t wel

l kno

wn

type

of a

gree

men

t in

this

cat

egor

y is

the

web

site

priv

acy

polic

y. W

ebsi

tes

rout

inel

y de

scrib

e fo

r th

eir

user

s ho

w th

ey c

olle

ct, s

tore

and

re-

use

info

r-m

atio

n pr

ovid

ed b

y th

ose

user

s. S

omet

imes

, the

se p

olic

ies

are

sepa

rate

lyse

t for

th in

the

web

site

's "

term

s of

use

" se

ctio

n. In

eith

er c

ase,

if a

data

base

incl

udes

info

rmat

ion

prov

ided

by

user

s of

a w

ebsi

te, t

hat w

eb-

27. I

d.28

. Id.

§ 65

02 (

b) (

1) (

B)

(200

6).

29. I

d.


2008

]D

AT

AB

AS

E M

&A

- W

HA

T'S

D=

RE

NT

?13

9

site

's p

rivac

y po

licy

or te

rms-

of-u

se s

ectio

n m

ay w

ell c

onst

itute

a b

indi

ngan

d en

forc

eabl

e co

ntra

ct g

over

ning

how

the

rele

vant

dat

a is

use

d.S

imila

rly, a

gree

men

ts w

ith d

ata

aggr

egat

ors

and

othe

r pa

rtie

s th

aten

gage

in th

e bu

sine

ss o

f col

lect

ing

data

, and

pro

vidi

ng th

at d

ata

for

use

in th

e da

taba

ses

of o

ther

s, o

ften

subs

tant

ially

res

tric

t how

that

dat

a m

aybe

use

d by

the

reci

pien

t. In

man

y w

ays,

thes

e ar

rang

emen

ts a

mou

nt to

data

base

sub

-lice

nsin

g re

latio

nshi

ps, w

here

a r

ecip

ient

is a

utho

rized

toin

corp

orat

e th

e so

urce

d da

ta in

to a

larg

er d

atab

ase

that

is th

en m

ade

avai

labl

e to

oth

ers.

Exa

mpl

es o

f thi

s ty

pe o

f ent

ities

that

rel

y on

this

type

of r

elat

ions

hip

are.

cre

dit r

epor

ting

agen

cies

and

larg

e da

ta s

ervi

ce p

rov-

ider

s lik

e Le

xis/

Nex

is. I

n ea

ch in

stan

ce, t

he c

ritic

al q

uest

ion

is w

hat l

imita

-tio

ns, i

f any

, are

impo

sed

on u

se a

nd d

isse

min

atio

n of

the

data

by

the

sub-

licen

see.

The

se a

re s

ubst

antiv

ely

the

sam

e co

ncer

ns th

at a

n en

d-us

er m

ust

cons

ider

whe

n it

subs

crib

es to

a d

atab

ase

as d

iscu

ssed

bel

ow.

Dat

a D

isse

min

atio

n C

ontr

acts

Dat

a di

ssem

inat

ion

cont

ract

s ar

e ag

reem

ents

bet

wee

n th

e en

tity

that

owns

the

data

base

and

its

cust

omer

s. F

or e

xam

ple,

whe

n a

law

frm

sub

-sc

ribes

to W

stla

w, t

here

is a

det

aile

d ag

reem

ent.

purs

uant

to w

hich

the

firm

and

its

empl

oyee

s ar

e pe

rmitt

ed to

acc

ess,

use

and

ext

ract

info

rma-

tion

from

the

data

base

, but

the

agre

emen

t will

set

fort

h ce

rtai

n sp

ecifc

rest

rictio

ns o

n th

e us

e of

that

info

rmat

ion.

Typ

ical

ly, t

hose

res

tric

tions

expr

essl

y in

clud

e a

proh

ibiti

on o

n re

dist

ribut

ing

the

info

rmat

ion

or m

ak-

ing

mor

e th

an a

lim

ited

num

ber

of c

opie

s of

the

info

rmat

ion.

Fro

m th

e pu

rcha

ser's

per

spec

tive,

a c

ritic

al c

once

rn w

ith th

ese

con-

trac

ts is

ens

urin

g th

at th

ey d

o no

t gra

nt to

end

-use

rs s

ufci

ent r

ight

s to

effe

ctiv

ely

redi

strib

ute

the

data

base

in c

ompe

titio

n w

ith th

e co

mpa

ny to

be a

cqui

red.

Ord

inar

ily, c

onfd

entia

lity

requ

irem

ents

, lim

itatio

ns o

n co

p-yi

ng a

nd r

edis

trib

utio

n, a

nd s

ecur

ity p

rovi

sion

s (e

.g.,

pass

wor

d-pr

otec

ted

acce

ss)

can

be s

uffic

ient

pro

tect

ions

, but

enf

orce

men

t of t

hese

con

trac

-tu

al li

mita

tions

can

be

diffc

ult i

n th

e co

ntex

t of e

lect

roni

c da

taba

ses.

Ac-

cord

ingl

y, it

is c

ritic

al to

ens

ure

that

app

ropr

iate

lim

itatio

ns, a

nd r

obus

tse

curit

y pr

ovis

ions

, are

not

onl

y co

ntra

ctua

lly r

equi

red,

but

als

o in

fact

prop

erly

and

con

sist

ently

impl

emen

ted.

CO

NC

LUS

ION

Whi

le D

atab

ase

M&

A o

n th

e su

rfac

e is

qui

te s

imila

r in

pra

ctic

e to

any

ordi

nary

M&

A d

eal,

the

com

plex

ity o

f dea

ling

with

the

issu

es s

peci

fc to

data

base

s m

ake

Dat

abas

e M

&A

a u

niqu

e pr

actic

e. T

he p

urpo

se o

f thi

sar

ticle

was

to il

lust

rate

the

issu

es g

erm

ane

to d

atab

ase

tran

sact

ions

, and

aler

t law

yers

to th

e po

tent

ial p

itfal

ls in

volv

ed. I

t is

cruc

ial t

o ap

prec

iate

,the

com

plex

ity in

volv

ed in

det

erm

inin

g th

e le

gal s

tatu

s of

all

the

data

cont

aine

d in

the

data

base

am

idst

the

inte

llect

ual p

rope

rty,

reg

ulat

ory,

and

cont

ract

ual m

inef

elds

dis

cuss

ed in

this

art

icle

. Whe

n th

e da

taba

se is

the

mai

n fo

cus

of th

e tr

ansa

ctio

n, la

wye

rs s

houl

d pa

y cl

oser

atte

ntio

n to

the

issu

es in

volv

ed a

s a

mat

ter

of c

ours

e. H

owev

er, i

n th

ose

deal

s w

here

a


140

BLO

OM

BE

RG

CO

RP

OR

AT

E L

AW

JO

UR

NA

L[V

ol. 3

:128

com

pany

's d

atab

ase

is ju

st o

ne o

f man

y as

sets

obt

aine

d, r

emem

ber

that

the

data

base

con

tain

s its

ow

n sp

ecia

l ser

ies

of le

gal i

ssue

s. A

s da

taba

ses

cont

inue

to g

row

in v

alue

with

gre

ater

app

licat

ions

, so

too

will

the

need

to a

sk a

nd a

nsw

er th

e pr

oper

que

stio

ns w

hen

enga

ging

in D

atab

ase

M&

A.


Documents

Bloomberg Spring 2008 Bloomberg CORPORATE LAW JOURNAL · PDF fileBloomberg CORPORATE LAW JOURNAL Volume 3 Spring 2008 ... Johnson is a co-author of the U.S. Law chapter of the Wrld