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Due diligence issues to consider in M&A

BY CARLOS WOODWOTH
MANAGING INTELLECTUAL PROPERTY, INTERNATIONAL BRIEFINGS, MAY 2008
When a merger divestiture or purchase of assets involves intellectual property, a corporate IP attorney should be part of the team. The business purpose of the transaction and expectations for the IP assets must be discussed with the client. Through that guidance, the corporate IP lawyer will be able to perform the due diligence and advise whether the transaction will meet the client’s expectations.
Although all attorneys know the value and importance of due diligence, when IP rights are involved, too many times the need for experienced IP lawyers as part of the transaction team is overlooked, and all too often, subtle points can be easily ignored in the due diligence process.
Whatever assets the seller owns will automatically go to the buyer, and the focus will always be whether or not seller really owns, or has the rights to use, the intellectual property that is the subject matter of the acquisition.
All prosecution, litigation and licence files relating to the intellectual property must be reviewed. The seller’s past failure to enforce its rights could result in the seller having nothing to transfer. The client may want to take steps to ensure that the assets it acquires will not infringe the rights of others. Have you thought that a change of control may terminate material licences?
Additionally, for transactional lawyers, many of the concepts used in IP representations and warranties are not common territory, and even when the language used under an acquisition agreement representations and warranties section might be familiar, the nature of the IP rights imposes the need to pay special attention, as they might have an unfamiliar scope.
The most important factor is to include someone on your team who knows IP and can spot these non-straightforward issues early in the process. Then, it is a matter of taking corrective action, where needed, and negotiating specific IP representations and warranties to protect the client.