Be prepared - Scouting for IP problems Daniel Pavin Licensing Executives Society 23 January 2003

Overview Scope of this talk: specific issues within IP due diligence Why carry out it out? Timing constraints Tailoring the due diligence exercise Some comments on IP agreements Keeping one eye on the future Managing IP after the transaction is complete

Why carry out IP due diligence (as a buyer) 1 Caveat emptor – think “used car” Establish what IP you will get Establish whether there are any restrictions on that IP Assess risk

Why carry out IP due diligence (as a buyer) 2 Manage risk Live with it on current terms Change terms to reduce or remove the risk Change terms to make the risk commercially acceptable Get the seller to sort out the issue pre-contract Assess the value of the target IP – are you offering the right price? (Were your assumptions correct?) Decide whether you are doing the right sort of deal (or whether you should even do the deal at all)

Why carry out IP due diligence (as a seller) Avoid liability for: Misrepresentation Breach of warranty If you know less about your business than the purchaser/investor then your negotiating position is weakened

Why can’t I rely on my warranties? Limitations of liability By maximum claim By minimum claim By time Assumes warrantor will be around and will have money “Solutions” after the event (i.e. litigation) invariably more expensive than solutions before the event “Hassle factor” Damages may be less than actual loss

CLICHÉ ALERT PREVENTION IS BETTER THAN CURE

It’s all in the timing… Question 1 What is the timetable for the deal? Question 2 No, seriously – what is the timetable for the deal?

Tailoring your IP due diligence to the transaction What is the value of the deal? What is the value of the IP in the context of the deal? At what stage of development is the product? What are the intended markets? What is the nature of the technology? E.g. “platform technology” What does the business model say?

Too many rights, not enough time (or fees) Narrow down to key patents (or other rights) Which ones are “key” Are they the ones which are key to the client? Narrow down to key jurisdictions See above Contractual back-up Warranties Indemnities

Too many rights, not enough time (or fees) In an ideal world, you would investigate: What is the invention disclosure policy within the seller? What do the employment contracts say? What do consultancy agreements say? What do assignment agreements say? At the other extreme: Target warrants that it owns all the “Business IP”

Due diligence of IP-related agreements Show me the money… Royalty provisions Other terms for close study: Restrictions on grant Termination events and duration Restrictions on assignment and licensing Obligations to disclose and license which extend into the new group

Keeping one eye on the future… For example… Data protection Privacy in Electronic Communications Directive Distance selling regulations Terms and conditions of business EU enlargement Definitions used in agreements

Client concerns Cost (And on that note, “How much due diligence should I do?”) Focusing on the elements that really matter: Did the client convey them to your organisation? Is everyone in your organisation (or in the pool of advisers) “on message”

Presenting the findings – the due diligence report How to present the findings: By IP right? By product? By R&D activity/project? Look ahead to post-completion

Managing IP after the transaction is complete Post-acquisition: Do you have sufficient resources to manage the portfolio? Enough staff? In-house or external resource? Do you need ongoing help? Are all the IP assets documented? Maintenance fees Licensing opportunities Exploitation strategies Notices to serve People to sue?

Any questions? Daniel Taylor Wessing Carmelite 50 Victoria Embankment London EC4Y 0DX England Tel:+44 (0) Fax:+44 (0)