Merger Market M&A Insights: Spotlight on IP Rights. Bliss White, Partner, Blake, Cassels & Graydon LLP

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1 Merger Market M&A Insights: Spotlight on IP Rights Bliss White, Partner, Blake, Cassels & Graydon LLP

2 Brand Migration - Due Diligence and Contract Issues Challenges re IP due diligence Consequences of insufficient IP due diligence Process begins too late/insufficient time Failure to identify IP risks (80%) Failure to link identified issues to valuation and deal structure Failure to secure rights to target s IP assets (52%) Lack of sufficient resources Failure to identify upside that IP offers Process overlooks ownership issues Failure to align IP due diligence with overall corporate strategy Overvalued IP assets (48%) Poor integration and exploitation of IP assets post-deal (46%) Failure to identify IP opportunities (32%) Undervalued IP assets (18%) Source: MergerMarket

3 Brand Migration - Due Diligence and Contract Issues Evaluating and Facilitating Ability to Migrate the Brand Due Diligence Planning Transaction objectives Transaction structure Team Priorities Request list Searches Interview with seller/target Freedom to operate (FTO) analysis Report Facilitating Agreements Assignments, Consents, Releases by Third Parties Purchase Agreement - Price - Representations and warranties - Covenants - Indemnity - Closing conditions Transitional Services Agreement Licence Agreements

4 Brand Migration - Due diligence and Contract Issues Brand-Related IP marketed elements: trade marks; service marks; logos; trade names; domain names; colours; slogans; trade dress/industrial design underlying elements: IP comprising key inputs to goods and services associated with the visible brand patents; trade secrets / proprietary know-how / technology; proprietary software; copyright; mask works; certification marks Team transaction team; in-house and external IP legal counsel (by country); sales and marketing; engineering; HR; IT Purposes: to identify and assess all IP used in the business seller s / target s ownership shared ownership liabilities and issues liens / security interests restrictions on transfer restrictions on planned use / FTO IP protection and enforcement policies current or potential claims by third parties current or potential claims against third parties value / price

5 Brand Migration Due Diligence and Contract Issues Types of Transaction Share Purchase: pre-closing liabilities change of control clauses Mergers (forward / reverse): pre-closing liabilities change of control clauses assignment clauses Asset Purchase: included assets assumed liabilities assignment clauses Carve-Out Transaction: shared-use assets: included or excluded IP licence / licence back / cross-licence IP / IT transitional usage and services Public Company Target: no post-closing R&W; seller indemnity; escrow; price adjustment

6 Brand Migration - Due Diligence and Contract Issues: Common Issues Liens / Security Interests Registered IP: Patents, Trade Marks, Copyright unbroken chain of public record title in each jurisdiction prior owner(s): acquired from third party; invented by employee or consultant review assignments to seller/target for restrictions and obligations seller/target (or subsidiary) vs affiliate? status of applications and registrations in all markets/countries interim period and post-closing maintenance FTO study to evaluate risk of infringing third party rights Patents invalidity testing / study of prior art inequitable conduct in prosecution Trade Marks statutory vs common law protection associated goods and services use it or lose it abandonment intent-to-use ( ITU ) applications Copyright statutory vs common law protection reversion rights work-for-hire assignment agreements with employees / consultants

7 Brand Migration Due Diligence and Contract Issues Software proprietary software open-source software terms of licence source code escrow enterprise-level licences / transitional services Trade Secrets existence and terms of formal policy to protect confidentiality terms and term of NDAs with employees, independent contractors, others restricted access Shared Ownership jointly owned IP legal and contractual rights IP jointly developed with government, university, other institutions rights granted and received Restrictions on Assignment / Change of Control asset sale share sale mergers

8 Brand Migration Due Diligence and Contract Issues Third Party Agreements and Licences / Restrictions on Usage joint development; software development; JV; M&A; manufacturing; supply; co-marketing; distribution; settlement agreements; general T&Cs; stand-alone licences assess if seller/target as licensor has retained, and as licencee has acquired, appropriate rights: exclusive vs non-exclusive; territorial or field of use restrictions; royalties; revocability / term / termination registration where required adverse impact on buyer s IP: non-compete; non-solicit; springing licence ability to extend usage to buyer s current and future goods and services IP-Related Disputes Other against or by seller / target civil litigation; IP registration process; industry SRO infringement; royalty audit cease and desist letters; request for licence; legal audit letters legal and enforceability limits to brand migration

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