Despite Zuckerman’s decision to go it alone on the Instagram deal, intellectual property counsel play an increasingly important role in mergers and acquisitions (M&A). M&A used to be the domain of corporate lawyers, and corporate lawyers still typically lead M&A transaction teams, but it’s now common to see intellectual property counsel from both sides working as part of the team to draft and negotiate the intellectual property aspects of the agreement. That is as it should be.
Even outside the technology sector, technology and intellectual property assets are a significant part of nearly every company’s value. Intellectual property claims also pose some of the most serious risks faced by modern business enterprises.
A merger, acquisition, or asset sale will itself give rise to intellectual property risks that can disrupt a company’s ongoing operations in several ways. For example, as a result of the transaction, companies can lose their rights to use mission critical software or technology licensed from third parties, former employees and contractors may claim rights to key intellectual property assets, and competitors and patent trolls may attempt to exploit the transaction by raising claims of patent infringement after the deal is announced.
Buyers rely on their intellectual property counsel
- to help assess the value and strength of a company’s intellectual property assets,
- to identify and evaluate the risk of intellectual property claims against the company,
- to evaluate the effect that the transaction itself will have on the company’s ongoing operations, and
- to help ensure that they receive unencumbered title to the intellectual property assets that they acquire.
Sellers in turn rely on their intellectual property counsel
- to ensure they have made adequate disclosure of any known intellectual property issues,
- to help assuage any concerns raised by the buyer, and
- to reduce the risk that the buyer will either refuse to close the transaction after it is announced or bring indemnification claims against the seller after the deal has closed.
The intellectual property provisions of the merger agreement are the primary tools that counsel have at their disposal to perform those critical functions. Thus, intellectual property counsel should be thoroughly familiar with, and actively engaged in, the drafting and negotiation of those sections of the merger or acquisition agreement. For the basics an IP attorneys needs to know about M&A agreements, check out my next blog post.
It’s also important that intellectual property counsel understand the context of the transaction, the business justification, and the core issues that are likely to be encountered to tailor the intellectual property representations and warranties appropriately and to avoid inadvertent requests for disclosure that could harm the buyer or seller. For example, a detailed disclosure on known infringement of the seller’s intellectual property rights could be used to support defenses of estoppel and laches if the buyer ever decides to enforce its intellectual property rights. It is therefore important for intellectual property counsel to be intimately involved with and integrated into the transaction team and to take ownership of the intellectual property aspects of the transaction.
If you are handling an M&A transaction, you’ll need CEB’s Intellectual Property in Business Transactions, with an entire chapter (Chapter 7) dedicated to intellectual property issues in M&A agreements. This chapter includes and explains the typical intellectual property clauses in the primary forms of M&A agreements and provides practical tools and techniques for drafting and negotiating those clauses from the perspective of intellectual property counsel for both buyers and sellers.
Also check out CEB’s Sales and Mergers of California Businesses for complete forms of business acquisition and merger agreements and general discussion of M&A transactions, and the article California Law Issues for the M&A Lawyer in the Spring 2012 issue of CEB’s California Business Law Practitioner.
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