Fundamental IP and Privacy Issues in M&A Transactions
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Transcript of Fundamental IP and Privacy Issues in M&A Transactions
© 2015 Winston & Strawn LLP
Fundamental IP and Privacy Issues in M&A Transactions
April 1, 2015
© 2015 Winston & Strawn LLP
Today’s Speakers
Liisa M. Thomas Becky L. Troutman
Partner, Intellectual Property and Technology San Francisco +1 (415) 591-1401 [email protected]
Chair, Privacy and Data Security Practice Chicago +1 (312) 558-6149 [email protected]
© 2015 Winston & Strawn LLP
1. Do You Need to Worry About Intellectual Property or Privacy in Your Deal?
2. What To Worry About During Diligence
3. Negotiating the Deal
4. Wrapping Up the Deal
3
© 2015 Winston & Strawn LLP
Should You Worry About IP?
Yes!!
What Happens Post-Deal
Deal Drivers
Nature of Business
4
© 2015 Winston & Strawn LLP
Should You Worry About Privacy?
Yes!!*
Nature of Business?
Consumer Info?
Employee Info?
*The FTC Cares, and you should too… 5
© 2015 Winston & Strawn LLP
Does the Target Have Patents?
What is patentable?
Ideas
Designs
Plant varieties
Must be new, non-obvious
Did They Create Rights?
Gov't issues
Limited duration
What Rights?
Stops others from making, using, selling,
importing
Not an affirmative
right to practice the invention
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© 2015 Winston & Strawn LLP
Patents: Red Flags
Ownership Transfer
Security Interests Territory
Filing Deadlines Disputes
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© 2015 Winston & Strawn LLP
Does the Target Have Consumers' Information?
What kind of information?
Names and addresses
Usernames and passwords
Emails
Behaviors (online, offline)
Where could it come from?
Online newsletters
Product purchases
List purchases
Legal restrictions
Use as represented
Regulated industries (health,
financial)
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© 2015 Winston & Strawn LLP
Consumer Information: Red Flags
Use Restriction • Regulatory • Disclosure-Driven
Ability to Transfer • Disclosure-driven • Third Party contracts
Insufficient Security • Breaches? • Failed audits?
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© 2015 Winston & Strawn LLP
Does the Target Have Copyrighted Works?
What is protected?
Fixed expression of idea
Literary work
Musical or dramatic work
Pictures, sculptures, architectural works
Sound recordings
How is it protected?
As soon as fixed
But to exercise rights, need registration
What rights?
To make copies, modify, distribute, perform
Rights are limited (but longer than patent rights)
Protects against unauthorized copying,
modification, distribution, performance
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© 2015 Winston & Strawn LLP
Copyright Red Flags
Ownership Joint Owners
Transfer Security Interests
Termination of Licenses Disputes
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© 2015 Winston & Strawn LLP
Does the Target Have Trademarks?
What is a trademark?
Company names
Product names
Logos
Trade dress
Colors
What is protected?
Stops others from creating
confusion
Confusion test multi-faceted
Can mean stopping similar
uses
Duration?
Indefinite
If protected!!
Registration in US not required
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© 2015 Winston & Strawn LLP
Trademark Red Flags
Ownership Transfers
Licenses Disputes
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© 2015 Winston & Strawn LLP
The Target Has Domain Names
What are they?
Web site addresses
How do you get them?
Register with domain registrar
Anyone in IT could get
Red flags
Searching difficult
Did employee put it in his/her
name?
Transfers can be complex
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© 2015 Winston & Strawn LLP
The Target Has Employee Information
What information?
Names, addresses
SSNs
Compensation, financial info
Risks
International flows
Stored forever
Legal usage restrictions
Many third party vendors
Breach, breach, breach
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© 2015 Winston & Strawn LLP
Does The Target Have Trade Secrets?
What is it?
Formulas, Processes
Source Code
Customer Lists
Did They Protect it?
Secret!
Value b/c not known
How Created?
Take steps to keep secret
Limit access
Confidentiality agmt
Safeguards
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© 2015 Winston & Strawn LLP
CLE Code
74351
© 2014 Winston & Strawn LLP
1. Do You Need to Worry About Intellectual Property or Privacy in Your Deal?
2. What To Worry About During Diligence
3. Negotiating the Deal
4. Wrapping Up the Deal
18
© 2015 Winston & Strawn LLP
Getting The Right IP Information
Title searches •From target •On your own! •All current and
past owners •Confirm chain of
title
UCC Searches Review liens/licenses
Review Material Contracts
Look at Litigation •Claims made by
or against Target •Conduct
separate search
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© 2015 Winston & Strawn LLP
Getting the Right Privacy Information
Ask questions! • Where did it come from? • What did you tell people
about use? • What laws apply? • Has there been a breach?
Get the right documents • Privacy policies • Security policies • Third party audits • Litigation?
Transfer restrictions? • Policy restrictions (Asset
deal) • Agreements or promises
not to share?
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© 2015 Winston & Strawn LLP
Special Considerations for Patents
Discuss Trade secret and patent protection/enforcement strategy
Status of patents/pending apps
Review US file histories and potential bars to patentability/claim scope
International portfolio and potential bars to patentability/claim scope
Searches/opinions of counsel
Consider Conducting separate searches
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© 2015 Winston & Strawn LLP
• Discuss Target’s trade secret and copyright protection and enforcement strategy
• Discuss software development (who developed what, where and their relationship to the Target), and review all related employee and contractor agreements
• Review all third party tools, components and software used to develop, incorporated in or used in connection with products and services
• Review use of open source software • Review any source code escrow agreements or other source code
access given to third parties • Review any searches and opinions of counsel relating to licensing,
fair use, infringement or other copyright-related issues
Special Considerations for Software
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© 2015 Winston & Strawn LLP
Special Consideration for Trademarks Discuss Trademark protection/enforcement strategy
Status of registrations/applications; use of marks
Review File histories
International portfolio
Examples of use
Opinions from counsel
Understand Scope of rights and protections
If anything is vulnerable
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© 2015 Winston & Strawn LLP
Special Considerations for Material Contracts
Identify
Inbound licenses
Outbound licenses
Trademark agreements
Reseller
Distributor
Franchise
Quality control?
Other Agreements
R&D
Manufacture
Supply
Pricing
Advertising
Reseller/Sales Agent
Privacy-Related
Website Terms
Clickwraps
DMCA Registrations? 24
© 2015 Winston & Strawn LLP
Special Considerations for Privacy
Potential breaches
Protection measures?
Third party contracts?
Regulatory obligations?
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© 2015 Winston & Strawn LLP
Special Considerations Relating to Litigation
Review IP-related inquiries, C&D letters, "informational" letters
Patent/trademark office filings
Litigation proceedings
Require (buyers)
Summary of challenges to rights
Analyses questioning rights to use
Discuss Allegations made by or against the Target
Subject areas: IP, advertising, data, pricing, competition, import/export, right of publicity
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© 2014 Winston & Strawn LLP
1. Do You Need to Worry About Intellectual Property or Privacy in Your Deal?
2. What To Worry About During Diligence
3. Negotiating the Deal
4. Wrapping up the Deal
27
© 2015 Winston & Strawn LLP
Understand for allocation of risk:
Getting Started in Negotiating the Deal
Purchase price Escrow/holdback Survival
period/fundamental reps
Basket Cap Qualifier Effect on Indemnity
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© 2015 Winston & Strawn LLP
Buy-Side: • Intellectual Property, personal
information and privacy laws defined broadly
• Clearly define what is owned vs. what is licensed and tailor reps to each bucket of IP
• Specify all material assets in a schedule (including registered IP, material common law trademarks, material in-licensed IP)
Sell-Side: • Narrow scope of definitions • Limit disclosures
Crafting Definitions
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© 2015 Winston & Strawn LLP
Basic Privacy Reps & Warranties
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General
• No separate privacy rep • Rely on general compliance with laws
Comply
• With privacy policy • For collection, use, storage, distribution
Claims
• None threatened • No actual
Security
• Have measures in place • No data breaches (knowledge)
© 2015 Winston & Strawn LLP
More Detailed Privacy Reps & Warranties
31
Comply
• With PCI-DSS • FTC Guidance, other admins • Industry standards • Industry-specific laws
Target
• Has conducted security assessments • Remediated/addressed risks • Has done training (effective)
Vendors • Comply with all of the above
© 2015 Winston & Strawn LLP
• Target owns or has the right to use / Buyer is acquiring all IP used in or necessary for the business
• The schedule contains a complete and accurate list of all Target-owned IP (or all Target-owned registered IP and material unregistered IP)
• All Target-owned IP is valid and enforceable (knowledge) • Protections taken to preserve confidentiality • There are no liens, claims or other encumbrances on the
use of IP
Basic IP Reps – Ownership
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© 2015 Winston & Strawn LLP
•No Infringement; Other Violations • No infringement or other violation of third party IP • No infringement by third parties of Target IP (knowledge)
• Licenses • Target has sufficient license rights from third parties • List of all [material] inbound and outbound licenses • No breach of third party licenses/agreements • No consents or additional payments required for, or other
restrictions on, transfer of licenses/assignments
•Material contracts rep
Additional Basic IP Reps
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© 2015 Winston & Strawn LLP
Detailed IP Reps & Warranties
• Support • Indemnity
Contractual obligations
• Sufficient for current (and planned) business
• Disaster recovery
Systems • Non-compete • Non-solicitation • Target
cooperation!
Misc.
•No gov't funding •Conf agmt, everyone
execute
Development of IP
• List all inventors •Disclose prior art •No public disclosures •Patent markings
Patent Protection • Schedule 3rd party
software •Don't use in
"undesirable" way
In-Bound Licenses/Open Source
Software
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© 2015 Winston & Strawn LLP
IP Rights Retained by Seller and Licensed to Buyer or Transferred to Buyer and Licensed Back to Seller
Purpose; Scope
Term; Termination
Exclusivity; Non-Compete
Restrictions on transfer
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© 2015 Winston & Strawn LLP
IP Rights Retained by Seller and Licensed to Buyer or Transferred to Buyer and Licensed Back to Seller
Ownership and license use rights
Enforcement against infringers
Indemnity
Limitation of liability
Privacy Considerations 36
© 2014 Winston & Strawn LLP
1. Do You Need to Worry About Intellectual Property or Privacy in Your Deal?
2. What To Worry About During Diligence
3. Negotiating the Deal
4. Wrapping up the Deal
37
© 2015 Winston & Strawn LLP
Pre-Closing Action Items
Disclosure Schedules
Legacy Security Interests
Assignments Required Consents
Security Agreements
IP Maintenance
Clear Ability to Use PII
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© 2015 Winston & Strawn LLP
Post-Closing Action Items IP
Ass
ets • Assignments
• Domain Transfer
• Licenses • Prosecution
going forward?
• New filings? • Anything
expiring? Pers
onal
Info
rmat
ion • Update
Disclosures • Improve
Security • Audit/Assess
Third Party Relationships
• Educate Employees M
ater
ial C
ontr
acts
• Consents • Renewals • Terminating
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© 2015 Winston & Strawn LLP
Lessons Learned?
Think about privacy and intellectual property at the beginning of the deal!
40
© 2015 Winston & Strawn LLP
CLE Code
74351
© 2015 Winston & Strawn LLP
Thank you!
Liisa M. Thomas Becky L. Troutman
Partner, Intellectual Property and Technology San Francisco +1 (415) 591-1401 [email protected]
Chair, Privacy and Data Security Practice Chicago +1 (312) 558-6149 [email protected]
42