Kko ip due diligence presentation (digital boot camp) 2016-02-17(2)

Digital Health Bootcamp
February 22, 2016
Brad Schoenfeld
Partner
Kendall, Koenig & Oelsner

• If possible, Acquirer will want to do as much due diligence
as possible under an NDA before the parties sign a letter
of intent or definitive agreement.
• Generally due diligence should be completed before
definitive agreement is signed.
 Diligence impacts and defines terms of definitive
agreement – including scope of reps & warranties.
 Completion of “satisfactory” due diligence typically is
not a condition to the closing.
3
Intellectual Property Due Diligence
Timing

Purpose
• Ownership.
• Does Target own all of the rights to the technology it uses?
• Protection/Liability Issues.
• What IP protection has the Target secured, or will be able to
secure? How effective will that protection be in keeping
competitors away?
• Identification of risks that need to be minimized under
definitive agreements
• Freedom to Operate.
 Can the Target commercialize its technology without infringing
third party IP rights?
4

 Type of investor (e.g., strategic/financial) and stage of
Target will impact scope of diligence.
 Increasing bank diligence on transactions.
 Structure of transaction (asset purchase, merger, stock
purchase, new joint venture)
 Nature of target’s business and products
 The scope of due diligence also is influenced by the
Acquirer's objective(s) for the acquisition:
 To acquire employees and know-how.
 To acquire a critical piece of technology.
 To eliminate a competitor.
5
Scope

 Purpose #1 – Acquiring Employees/Know-How.
 Have all employees signed employee invention
assignment and proprietary rights agreements?
 Who are the key employees and what’s been done to get
them to stay (e.g., employment contracts, equity awards,
stock vesting)?
 Are the key employees willing to continue to work for
Acquirer, and if not, can they be precluded from
competing against Target and from using Target’s
confidential information?
6
Scope

 Purpose #2 -- Acquiring a Critical Piece of
Technology.
 What IP protection is available for the technology, and
has Target taken appropriate steps to perfect its
intellectual property rights in the technology?
 Does the technology infringe upon the intellectual
property rights of any third parties?
 Acquirer may want to negotiate a license to the
technology so that Acquirer will have future access to
the technology even if the acquisition is not completed.
7
Scope

Scope
 Purpose #3 – Elimination of a Competitor.
 Are covenants not to compete enforceable in the
relevant jurisdiction? Even in some states where non-
competes are generally unenforceable, exceptions exist
for competitive restrictions agreed to in connection with
the sale of a business.
 Colorado law permits noncompetition covenants in
certain circumstances.
 Assignment issues

 Patents.
• Request list of all patents (both U.S. and foreign) which are
issued and applied for, together with copies of the patents
and patent applications.
• Independent search of issued patents may be conducted
using online databases, including searching PTO files.
9
Identification of IP Assets

 Trademarks/Servicemarks.
• Request list of all trademark registrations and pending
applications.
• Independent search of federal trademark registrations,
as well as most state and many foreign trademarks may
be conducted using online databases, including
searching PTO files.
• Request list of URLs if material to business.
10

 Copyrights.
• Obtain list of all U.S copyright registrations.
 Most foreign countries do not require registration of
copyrights.
 Obtaining a list of all copyrighted works usually is
impractical and potentially burdensome.
• Independent search of copyright registration may be
conducted using online databases, including searching
Copyright Office files.
11

 Trade Secrets.
 Obtaining a list of all trade secrets usually is
impractical and potentially burdensome.
 More important to investigate the practices and
procedures used by Target to protect its trade secrets.
 Obtain relevant agreements (e.g., Non-analysis
agreements).
12

 Title Issues.
• Have all relevant employees signed invention and proprietary rights
agreements?
• Who is the owner of record of all patents, copyright registrations,
trademark registrations?
 Have all inventors and authors executed assignments?
 Have all assignments in the chain of title been properly recorded?
 Are there any joint owners?
 In certain cases, review of PTO and Copyright Office records may be
necessary.
• Have any adverse claims of ownership been asserted?
13
Ownership of IP Assets

 Independent Contractors.
• Have independent contractors contributed to development of
copyrighted works, including software or websites?
• Are contributions of contractors considered “works for hire”?
 Signed agreements with non-employee contractors
stipulating that work is a “work-made-for-hire”?
 Does work fall within one of the statutory categories that
qualify as a work-made-for-hire under 17 U.S.C. Section 101?
• Have contractors assigned copyrights or other intellectual
property rights to Target?
15

Intellectual Property
Due Diligence
 Employee Issues.
 Noncompete/
Nonsolicitation
agreements
 Confidentiality or
proprietary information
agreements

 Security Interests.
• Is Target’s intellectual property subject to any security
interests?
• Are there any IP escrow agreements in place?
• Have security interests been granted in agreements but
not perfected?
• Searches:
 UCC searches
 PTO and Copyright Office files
17

 Inbound Licenses.
• Review “license in” agreements for technology used by
Target in the ordinary course of its business, including
technology incorporated by Target into its products?
• Potential issues include:
 Assignability/Change of Control
 Right to grant sublicenses
 Exclusive vs. non-exclusive
 Restrictions on licensed field of use, territory, etc.
 Royalty obligations
 Term and termination
18
Prior Agreements

 Outbound Licenses.
• Review “license out” agreement under which Target has licensed its
technology to third parties.
 Scope of license
 Compensation to Target (e.g., royalties)
 “Most favored nations” clauses
 If software, has source code been licensed or escrowed?
 Scope of indemnity for IP infringement given by Target
19
Prior Agreements

 Other Agreements.
• Review distribution, sales rep, value added reseller (VAR), original
equipment manufacturer (OEM), joint venture and other reseller
agreements.
 Territory and restrictions on use
 Minimum commitments
 Compensation/Pricing
 Assignability
 Right to grant sublicenses
20
Prior Agreements

 Patents.
• Is Target’s critical technology covered by patents or patent
applications?
• Are patents valid and enforceable?
 Have all maintenance fees been paid?
 When do patents expire?
 Are there any blocking patents or known challenges to the patent’s
validity or enforceability?
• Review issues with Target’s patent counsel and outside experts
(if necessary).
• Not recommended for Acquirer to rely upon representations
and warranties instead of conducting due diligence.
21
Validity and Strength of IP

 Trademarks/Servicemarks.
• Are key marks registered and in force in relevant
jurisdictions?
• Potential issues:
 Have marks become “generic”?
 Is Target using marks in same form and for same products as
registered?
 Have marks been abandoned by Target through non-use?
 Has Target taken action to monitor and enforce marks and to prevent
misuse by other?
 Has Target licensed marks to third parties, and if so are there adequate
quality control provisions to avoid “naked” license?
22

 Trade Secrets.
• Uniform Trade Secrets Act (adopted by Colorado)
• Has Target implemented and followed practices and
procedures to protect its trade secrets?
• Internal security procedures.
• Disclosures to employees and outsiders.
• Has Target granted licenses to its trade secrets?
23

 Litigation and Infringement Claims.
• Target should identify all litigation brought by or
against Target during past 5 years (pending and
disposed of) as well as all outstanding or threatened
claims related to Target’s intellectual property.
• Has patent counsel provided opinion of non-
infringement/invalidity?
• Have any office actions or oppositions/interferences
been filed?
24
Potential Liability Issues

Protecting Against Liability
 Representations and Warranties.
 Specific IP Reps
 Employee/Independent Contractor Reps
 Undisclosed Liabilities Rep
 Disclosure Schedules.
 Acquirer/Target (and their counsel) pay particular attention
to certain disclosure schedules and underlying reps.
 Post-Closing Covenants.
 Indemnification Provisions.
 Survival Periods/Caps/Baskets/Escrows.

26
Biography
Brad Schoenfeld is a Partner in the Technology and Commercial
Transactions Group of Kendall, Koenig & Oelsner. Mr. Schoenfeld
began practicing law with Troutman Sanders in Atlanta, Georgia and
spent more than 6 years in-house with General Electric Company and
Siemens Corporation. He served as (i) general counsel for a $1 billion
division of GE Energy, (ii) lead sourcing counsel responsible for the
legal issues related to GE Energy’s $12 billion worth of purchasing
throughout the world, and (iii) lead attorney for more than 10 different
business units of Siemens Energy & Automation and Siemens Power
Transmission & Distribution. Today, Mr. Schoenfeld represents
software, medical device, biotech, professional services,
manufacturing and consumer product companies throughout the U.S.
Contact info: Kendall, Koenig & Oelsner PC, 999 Eighteenth Street, Suite
1825, Denver, CO 80202; Phone: 303.672.0100; Email:
bschoenfeld@kkofirm.com

Kko ip due diligence presentation (digital boot camp) 2016-02-17(2)

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Kko ip due diligence presentation (digital boot camp) 2016-02-17(2)