mrj presentation and notes
TRANSCRIPT
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1133 Avenue of the Americas New York NY 10036-6710 212.336.2000 www.pbwt.com
Presentation to Visiting Members
of the Chinese State IntellectualProperty Office Delegation
Jeffrey I.D. Lewis
Michael Ridgway Jones
Jo Backer Laird
November 3, 2010
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1133 Avenue of the Americas New York NY 10036-6710 212.336.2000 www.pbwt.com
Intellectual Property Due Diligence Issues inAcquisitions of U.S. Companies
Michael Ridgway Jones
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IP Due Diligence
IP Agreements
Owned Intellectual Property
IP Disputes
Information Technology
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IP Agreements: Transferability
Effect of mergers and other business combinations on non-
assignment provisions
General rule: Transaction is an assignment if Target doesn't
survive
Minority view: Non-assignment provisions triggered by reverse
subsidiary mergers. SQL Solutions (N.D. Cal. 1991) Agreements silent on transferability
Non-exclusive IP licenses may not be assigned without
licensor's consent (majority view)
Exclusive licenses are assignable without licensor's consent(majority view)
Licensor may assign IP license without licensee's consent
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IP Agreements: Rights of Affiliates
Obligations that may apply to Buyer or its affiliates
"Licensed IP" may be defined as "all IP (in a certain field) owned by licensor [i.e.,
Target] or any of its affiliates"
After Closing, Buyer and its affiliates likely will be affiliates of Target, and Buyer's
IP may be "Licensed IP"
Agreements to which Target's parent or other affiliate is a party Target may have rights in certain in-licensed IP only as a result of its affiliate
status, which terminates as of Closing
"Divested Entity" provisions
Divested affiliate (Target) may continue using licensed IP for a limited time
post-divestiture
Seller may use licensed IP for divested affiliate's benefit
Licensor often obligated to negotiate new license in good faith with divested
affiliate
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IP Agreements: Bankruptcy Considerations
Contractual restrictions on debtor-licensee's assignment are
ineffective
Same rules as if agreements were silent on transferability
Debtor-licensor or its trustee can unilaterally reject an unfavorable
trademark license and terminate licensee's trademark rights
US bankruptcy law (Section 365(n)) protects licensees of other IP1) Non-US licensor may avoid Section 365(n) if primary bankruptcy
proceeding based outside US. In re Qimonda (E.D.Va. 2009)
Grant of license for source code escrow materials must be a
present grant of license
Bankruptcy court may not enforce license grant that is contingent on licensor'sbankruptcy
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Employee/Contractor Agreements
Invention assignment and confidentiality agreements
Present transfer of rights ("hereby assign") vs. promise to transfer("will assign")
"Work for hire" only applies to copyrights, not all IP
Software code is not one of the nine enumerated categories of work for hire
Inadequate confidentiality measures could threaten proprietarystatus of trade secrets
Confidentiality obligations should be perpetual for trade secrets
Some U.S. states will not enforce perpetual confidentiality obligations for non-
trade secret information
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IP Agreements
Defective trademark assignments and licenses
Assignments of trademarks must include associated goodwill
(business reputation)
Trademark license agreements should include quality control
provisions
Target should be exercising appropriate quality control for all
licensed-out trademarks
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Owned Intellectual Property: Patents
U.S. patent applications are not published (and cannot be
searched) for at least 18 months after filing Review filing records and consult patent counsel to determine scope and
filing status
Patents or patent applicationsfor which Target's employee
or contractor is the record owner Confirm assignment from inventor to Target was recorded with USPTO
Business method patents
Bilski(S. Ct. 2010): Confirmed that business methods are patentable;standards for patentability and validity remain unclear
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Owned Intellectual Property: Trademarks
International trademark registrations (and national extensions)
issued by the World Intellectual Property Organization (WIPO) onlycan be owned by/assigned to entities based in countries that are
members of the Madrid Protocol (83 countries) and/or Madrid
Agreement (56 countries)
The U.S. is a party to the Madrid Protocol, but not the Madrid Agreement. China is a party to both the Madrid Protocol and the Madrid Agreement
Example: A Chinese company cannot assign an international registrationto a Canadian company; Canada is not a party to either the Madrid Protocolor the Madrid Agreement
Example: A U.S. company could receive as assignee an internationalregistration that has been extended to France (a party to both theAgreement and Protocol), but not an extension to Algeria (a party to theAgreement only)
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Owned Intellectual Property:
Trademarks/Domain Names
"Intent-to-Use" trademark applications cannot be assigned prior to
amending the application to reflect the trademark is in use
Exception: Assignment permitted in connection with the transfer of
the entire business to which the applied-for trademark pertains
Some jurisdiction-specific domains only can be owned by/assigned to
persons or entities based in the applicable jurisdiction
Examples: United States (.us), Canada (.ca)
Information on jurisdiction-specific top level domains available at:
http://www.iana.org/domains/root/db/
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Owned Intellectual Property
IP developed using U.S. government/military resources
Arrangements may prohibit transfer to entities based outside United States
Abandoned or expired items
Revival may be possible for U.S. patents/trademarks after failure to pay fees
Damages can be recovered for pre-expiration infringement
Jointly owned IP
Joint ownership issues vary by type of IP and by jurisdiction
Example: Under U.S. law, each joint owner of a copyright owes the other aduty of accounting for licensing royalties received and is obligated to the
other to not destroy the value of the copyrighted work
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IP Disputes
Active U.S. IP litigation matters can be searched online
Most U.S. IP administrative actions can be searched online
Trademark and patent office actions
Trademark oppositions and cancellations
Patent interferences
Patent re-examinations and invalidation actions "Cease and desist" and "invitation to license" letters
Possibility of declaratory judgment action
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Patent Opinions (e.g., non-infringement, invalidity)
"Common interest" doctrine: Parties with a common legal interest
may share privileged communications without waiving privilege Inconsistent jurisprudence requires parties to assume waiver is possible
Take affirmative steps to limit disclosure and maintain confidentiality
Avoid pre-Closing disclosure if practicable
Provide representations and/or non-privileged background information
Delay disclosure until late stages of transaction
Execute an agreement identifying the common legal interest (e.g.,
anticipated joint litigation) and detailing confidentiality procedures
Avoid placing opinions in data room with other due diligence materials,particularly in an auction setting
Restrict access to external counsel or jointly retain neutral counsel
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Information Technology
Open Source Code
Do Target's proprietary software products incorporate open source code?
If so, was open source code used in a manner that could jeopardizeproprietary status of Target's software?
Due Diligence:
Review terms of relevant open source license agreements
Determine whether Target has and complies with internal policiesconcerning use of open source code
If concerns are material:
Request code logs
Perform scan on applicable source code
Retain software consultant to analyze open source use
Include representations in Purchase Agreement
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Information Technology
Websites
Terms of use and privacy policy
Change of control may trigger notice obligations in website privacy
policy concerning transfer of personal information
Sufficient rights to display pictures, text and other content
Compliance with DMCA "safe harbor" provisions (if websitepermits user-posted content)
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Committee on Foreign Investment in the United States (CFIUS)
Federal body that evaluates the effect on US national security of transactions that
could result in control of a US business by a non-US entity
Includes representatives from US government agencies, e.g., Departments of
Treasury, Justice, Defense, Homeland Security, Commerce and State
30-day initial review for CFIUS to clear a transaction. If not cleared, additional 45-day
review that concludes with recommendation to President, who issues order to clear,
prohibit or suspend transaction
Filing notice for CFIUS review is voluntary, but transactions not voluntarily
notified to CFIUS can be investigated or even un-wound post-closing
Companies can modify transaction to respond to CFIUS concerns
"National security" is broadly construed
Transfer of IP/technology-intensive company with government contracts may
trigger heightened scrutiny