Corporate Transactions for IP LawyersCorporate Transactions for IP LawyersThe Impact of IP on Corporate TransactionsThe Impact of IP on Corporate Transactions

EFFECTIVE IP DILIGENCE:EFFECTIVE IP DILIGENCE:PROCESSES FOR CORPORATE PROCESSES FOR CORPORATE

TRANSACTIONSTRANSACTIONS

Maria S. SpustekMaria S. SpustekIP PartnerIP Partner

Schnader Harrison Segal & Lewis LLPSchnader Harrison Segal & Lewis LLPOne Montgomery Street, Suite 2200One Montgomery Street, Suite 2200San Francisco, California 94104-5501San Francisco, California 94104-5501

001.415.364.6742001.415.364.6742mspustek@schnader.commspustek@schnader.com

WhatWhat is IP Diligence? is IP Diligence?

• Managing business riskManaging business risk• Analysis of Target’s IP Analysis of Target’s IP

– Ownership (the Holy Grail)Ownership (the Holy Grail)– Right to UseRight to Use– Right to Stop Others from UsingRight to Stop Others from Using

WhatWhat is IP Diligence? is IP Diligence? (con’t)(con’t)

• Context of the Business Context of the Business TransactionTransaction– Investment/FinancingInvestment/Financing– Acquisition or MergerAcquisition or Merger– LicensingLicensing

• DifferentDifferent Interests and Goals Interests and Goals

• Business Business alwaysalways drives drives outcome (!)outcome (!)

WhyWhy is IP Diligence is IP Diligence Important?Important?

• Knowledge is Power Knowledge is Power – Assists in Transaction Valuation Assists in Transaction Valuation – Highlights Potential Highlights Potential

Showstoppers Showstoppers – Creates LeverageCreates Leverage

• Role PlayRole Play– Strategically Fix “Problems”Strategically Fix “Problems”– Before Revealed as WeaknessesBefore Revealed as Weaknesses

WhyWhy is IP Diligence is IP Diligence Important? Important? (con’t)(con’t)

• Process More Important than After-the-Fact Process More Important than After-the-Fact Analysis Analysis – Different End Goals Likely Different End Goals Likely – Target’s Success ≠ Drive Purchaser to Complete the Target’s Success ≠ Drive Purchaser to Complete the

DealDeal– Better Developed and Protected Portfolio = Greater Better Developed and Protected Portfolio = Greater

Chance of Closing a Win-Win Deal Chance of Closing a Win-Win Deal

Practice Practice PointersPointers

• Create a TeamCreate a Team

• Familiarize the Team with Familiarize the Team with Relevant Background Relevant Background InformationInformation

• Check and Cross-CheckCheck and Cross-Check– Personnel InterviewsPersonnel Interviews– Document ReviewDocument Review– Independent Record ReviewIndependent Record Review

Create a Create a TeamTeam• Team MembersTeam Members

– In-house counsel In-house counsel • IP or corporate?IP or corporate?

– Outside counsel Outside counsel • IP IP andand corporate? corporate?

– Management Management • Directly involved with internal Directly involved with internal

strategy regarding strategy regarding negotiationsnegotiations

– Senior technical person(s) Senior technical person(s) • Directly familiar with Directly familiar with

technology and product line(s) technology and product line(s) at issueat issue

Create a Create a Team Team (con’t)(con’t)

• Don’t reinvent the wheel (!)Don’t reinvent the wheel (!)– Use 3Use 3rdrd party resource checklists party resource checklists– Deviate when necessaryDeviate when necessary

• Drill-Down on specific IP sub-areasDrill-Down on specific IP sub-areas– Assess Strength, e.g., for Patents Assess Strength, e.g., for Patents

• Breadth of patent claimsBreadth of patent claims• Design around optionsDesign around options• Infringement by competitorsInfringement by competitors

• One Team Member to CoordinateOne Team Member to Coordinate– Act as Liaison between IP sub-Act as Liaison between IP sub-

specialties and Team’s goals, process specialties and Team’s goals, process and end resultand end result

Familiarize with Familiarize with RelevantRelevant Background Background InformationInformation

• Target’s IndustryTarget’s Industry• Type of IP & Interplay with Target’s Type of IP & Interplay with Target’s

IndustryIndustry– Pet food vs. integrated circuit designPet food vs. integrated circuit design

• Nature of DealNature of Deal– Context, purpose, key termsContext, purpose, key terms

• Practical ConsiderationsPractical Considerations– Target’s policies and practicesTarget’s policies and practices

• Look for the “Fit” between Target’s IP Look for the “Fit” between Target’s IP with Purchaser’s business goalswith Purchaser’s business goals

Check and Check and CrossCross-Check-Check

• Verify information learned through Verify information learned through multiple sourcesmultiple sources– No surprises (!)No surprises (!)– Set internal timeframe for completionSet internal timeframe for completion

• ““Getting Ready” for responding to Getting Ready” for responding to Purchaser’s Due Diligence Purchaser’s Due Diligence RequestsRequests

• Anticipate…Anticipate…

Personnel Personnel InterviewsInterviews

• Target’s knowledgeable Target’s knowledgeable employees and consultants employees and consultants – Attorney client privilegeAttorney client privilege

• Others at Target with Others at Target with potentially relevant informationpotentially relevant information

• Former employees and Former employees and consultants?consultants?

DocumentDocument Review Review

• Analyze all information and Analyze all information and documentsdocuments

• Determine relevanceDetermine relevance• Organize in logical fashionOrganize in logical fashion

– Create easy to follow tables, chartsCreate easy to follow tables, charts– Highlight key provisions, e.g., Highlight key provisions, e.g.,

• Ability to assign in light of change of controlAbility to assign in light of change of control• Notice periodsNotice periods

IndependentIndependent Record Record ReviewReview

• USPTO and WIPOUSPTO and WIPO• US Copyright OfficeUS Copyright Office• Patent annuity and maintenance Patent annuity and maintenance

fee recordsfee records• Assignment recordsAssignment records• Prosecution filesProsecution files• UCC filings UCC filings • Internet and other resourcesInternet and other resources• Applicability of foreign lawsApplicability of foreign laws• SEC filingsSEC filings

ConductingConducting IP Diligence IP Diligence

• Key Questions Key Questions – What is the Target’s IP?What is the Target’s IP?– Who owns it?Who owns it?– Valid and enforceable?Valid and enforceable?– Restrictions?Restrictions?– Prosecution defects?Prosecution defects?– Litigation – actual or anticipated?Litigation – actual or anticipated?– Security interests or liens? Security interests or liens?

Properly perfected and Properly perfected and enforceable? BFPs?enforceable? BFPs?

The IP and its The IP and its Owner(s)Owner(s)

• Identify and inventory Identify and inventory – Every IP assetEvery IP asset– Owned by or used in Target’s businessOwned by or used in Target’s business– Every supporting documentEvery supporting document– Include inbound and outbound licensesInclude inbound and outbound licenses

• Categorize by Target’s products and Categorize by Target’s products and servicesservices– Past, present, futurePast, present, future

• Keep format easy to understandKeep format easy to understand

Nature and Scope of the Nature and Scope of the Target’s Target’s

ClaimedClaimed Rights in its IP Rights in its IP• Independently confirmIndependently confirm

– OwnershipOwnership– Scope of rights inScope of rights in

• Derivative worksDerivative works

• Tech support servicesTech support services

• Notice periodNotice period

• Non-solicitation and Non-compete Non-solicitation and Non-compete

– Availability of comparable Availability of comparable technologytechnology

– Ability to second sourceAbility to second source

ValidityValidity of the Target’s of the Target’s RightsRights

• Type specificType specific• Assess relative strength Assess relative strength

– Trade secrets Trade secrets • Employee and 3Employee and 3rdrd Party Consulting Agreements Party Consulting Agreements• NDAs, IP Assignments, entrance/exit interviewsNDAs, IP Assignments, entrance/exit interviews• Card swipe and Firewall policies and proceduresCard swipe and Firewall policies and procedures

• Evaluate internal IP maintenance Evaluate internal IP maintenance programsprograms– Written policiesWritten policies– Compliance procedures Compliance procedures – (Unwritten) practices(Unwritten) practices

• Corrective measures? Conditions to Corrective measures? Conditions to closing?closing?

RestrictionsRestrictions on on TransferabilityTransferability

• Fully assignableFully assignable• Prior obligationsPrior obligations

– Notice periodNotice period– ROFRROFR– Not to “competitor”Not to “competitor”– Termination prerequisitesTermination prerequisites

• ““For cause” vs. “no cause” For cause” vs. “no cause” termination termination

• Other issuesOther issues– BFPsBFPs– Open sourceOpen source– Annuities and other feesAnnuities and other fees

IP Infringement IP Infringement Claims Claims and and Other IssuesOther Issues

• Why important? Why important? – Reps/WarrantiesReps/Warranties– IndemnificationIndemnification

• By Target and by individual foundersBy Target and by individual founders

• Past, present, or anticipated Past, present, or anticipated disputesdisputes– Which companies (specific Which companies (specific

products/services) compete?products/services) compete?• Both vantages (!)Both vantages (!)

• Actually protect in a commercially Actually protect in a commercially relevant manner?relevant manner?

Wrap-UpWrap-Up

• Multitude of factors and players Multitude of factors and players – Transaction specificTransaction specific

• Even for separate deals for same TargetEven for separate deals for same Target– Drill downDrill down– Keep it realKeep it real– Be cost sensitiveBe cost sensitive– Be malleableBe malleable

• Job isn’t over until closing docs Job isn’t over until closing docs signed and post close details signed and post close details completedcompleted

Thank You!