13 Important M&A IP Issues
Navidar | December 6, 2018
M&A, particularly in the technology sector, often involves several complex intellectual property (IP) issues. Private businesses that are not subject to the scrutiny of public markets are especially vulnerable to intellectual property concerns. So before an acquirer commits to an acquisition, it typically undertakes an intensive due diligence process.
Intellectual property is an important driver of value. So it’s important to address these 13 key M&A IP issues before proceeding to due diligence:
IP documentation: You need an extensive list of all IP, as well as related documentation such as patents and patent applications, trademarks, technology licenses, and contracts with third party creatives.
IP history: You should be able to provide details about the development and acquisition of any and all IP, especially if you have paid third parties to write programs or content for you. If you need to pay a licensing fee to acquire the rights to content from third parties, do it before due diligence begins.
Representations and warranties regarding IP ownership: Your attorney must carefully review all documents related to who owns your IP. Representations and warranties are the definitive acquisition agreement, and will determine what you own. This in turn may decide how much the buyer is willing to pay.
Issues with open software: It’s common for developers to incorporate components of open source software into this projects. But this can trigger some ownership and licensing issues. Some licenses require people modifying the code to make the source code available. You’ll need to undertake a comprehensive review to determine how open source issues affect code ownership.
IP infringement representations and warranties: The acquirer usually wants the seller to warrant that their operation does not infringe on anyone else’s IP, that no other party is infringing upon their IP rights, and that there is no litigation or potential for litigation regarding IP.
Data protection and privacy issues: What have you done to protect user privacy and reduce the risk of cyber attacks? The more your company is in the public eye, the more important this becomes. You’ll also need to ensure you comply with relevant data protection and privacy laws.
Assess IP agreements: IP law is complicated, and ownership may be distributed across several owners, with licensing agreements further governing who can use what, and in what circumstances. Your attorney must review all IP agreements, then resolve any potential conflicts before due diligence.
Social media and websites: Social media and websites are common sources of IP disputes—from stock images you don’t own to content you’ve contracted with someone else to write. The acquirer will want to ensure you own your site, including its domain, and all content and media associated with it.
IP disputes: IP disputes are common, but the specifics of each dispute matter. The acquirer will carefully review any past IP disputes, as well as analyzing whether there are current disputes or the potential for future litigation. Unresolved third party claims, such as those between the USPTO, may be of particular concern.
Indemnification: Sellers must generally indemnify buyers against IP claims, which means the seller will take responsibility for any costs arising from these claims. The scope and specifics of this indemnification matters a lot, so talk to your lawyer about how best to draft these agreements.
Seller disclaimers: Your disclaimers must be clear, specific, and comprehensive. An unhappy acquirer may later claim that you committed fraud, but the right disclaimers can protect against this.
Change of control and assignment issues: Many IP agreements have specific clauses directing assignment and change of control. You must review each agreement to ensure you comply with its terms and properly transfer ownership.
Disclosure schedule: A disclosure schedule of IP issues is critical to due diligence. It’s also time-consuming, and may include information the seller would rather not reveal. Nevertheless, this disclosure schedule must be complete, lest the acquirer later accuse the seller of fraud or of non-disclosure.