Mary Ann Tucker
The BFGoodrich Company
I. Initial Considerations
1. Is the transaction driven or limited by technology considerations?
2. Amount and types of information to be reviewed? Categorize and rank as to importance.
3. What resources are available for the review? What part of the review will be handled by other functions, e.g., outside counsel, business management?
4. What time constraints exist? Establish priorities early.
5. How much risk with regard to intellectual property is management willing to take?
6. What major products, processes, R&D projects, future or developmental products and businesses are involved?
7. If third party experts will be used to evaluate know-how or technology, how will this know-how be protected?
1. Review of intellectual property must be coordinated with appropriate functions and geographic regions.
2. Identify representatives of all functions that will be on the team, e.g., business management, law, financial, human resources, engineering and product development, manufacturing, marketing, sales, R&D, real estate, tax.
3. The legal team should include intellectual property, business, anti-trust, tax, and where appropriate export, environmental, and securities law. Identify need for outside specialists as soon as possible.
4. Good communications is essential. The due diligence process is dynamic. New tasks and areas for investigation will be identified as the transaction progresses. There should be no surprises for team members or "territorial" barriers to achieving the shared goal.
5. Counsel clients to seek legal review prior to agreeing to terms.
1. Identify all U.S. and foreign issued patents and pending applications, both utility and design, used in or associated with the acquired business. Provide copies of Seller's prosecution histories.
2. Check title to and payment of maintenance fees for U.S. and foreign patents by searching U.S. and foreign patent office records.
3. Have the foreign patents been "worked" in countries requiring working? Provide documents.
4. Identify all opposition, reexamination, interference, reissue, confirmation of scope, nullity, inter partes and post grant proceedings. Provide information and documents.
5. Identify Seller's unfiled invention records. Provide copies.
6. Identify other R&D which may be appropriate for future patent protection.
7. Identify Seller's procedures for identifying, harvesting and protecting inventions, including procedures for determining that an invention should remain a trade secret, making foreign filing decisions, and ensuring the timeliness of patent filings.
8. Provide lab notebooks and other documents which are used for recording the date of inventions.
9. Identify key patents and their respective inventors. Are these inventors still employed by Seller? What is the term remaining on the key patents?
10. Determine which patents cover which products.
11. Does Seller mark the patented products? Provide samples of product marking.
12. Identify all agreements dealing with patents, e.g., licenses or interference settlement agreements, whether Seller is licensee or licensor. Provide copies. Are they transferable or assignable? Are consents necessary? Termination dates? Any restrictions or limitations? Are improvements included? Non-compete obligations?
13. Identify revenue streams or royalty obligations associated with each license.
14. Are there any restrictions or limitations on the use of the patent portfolio or third party ownership rights? Check for security interests, e.g., financing agreements or collateral assignments, by searching U.S. Patent Office and applicable state records, and by obtaining comparable foreign searches.
15. Provide all prior art searches, conclusions, reports and opinions, whether internal or external, that Seller possesses concerning the validity of its patents, the infringement of its patents by others, the infringement of third party patents by its products and the validity of such third party patents.
16. How has Seller enforced its patents in the past?
17. Provide copies of all correspondence relating to patent disputes, cease and desist letters, letters alleging infringement, warning letters, service of notice, letters threatening lawsuits or other legal notices received or sent by Seller.
18. Identify all litigation involving the patents and provide copies of complaints, answers, motions, judgements and consent decrees, settlement agreements.
19. Has Seller conducted any searches and/or analyses of competitors patents? Provide results.
20. Does Seller conduct product clearance? Provide copies of clearance procedures and any results and/or opinions.
21. Provide all correspondence to or from Seller inquiring about a possible license or the status of a patent or patent application.
22. Does any action need to be taken during the transition or due diligence periods to protect the patents, e.g., paying maintenance fees or responding to Office Actions? 23. Will imminent bar dates or disclosures of new products necessitate new filings in order to avoid loss of rights.
1. The term "trademark" includes trademarks, service marks, trade names and trade dress.
2. Identify all federal, state and foreign trademark registrations and pending applications used in or associated with the acquired business. Provide copies of Seller's prosecution histories. What is the date of first use in interstate commerce for each trademark?
3. Check title to and payment of renewal fees for federal, state and foreign trademarks by searching U.S. and foreign trademark office records, and applicable state records.
4. Provide all Section 8 and 15 filings.
5. Provide all registered user documents.
6. Identify all opposition, cancellation, inter partes, concurrent use and registration proceedings. Provide information and documents.
7. Identify Seller's procedures for selecting, clearing, using and protecting trademarks, including the procedure for deciding whether or not to seek registrations.
8. Determine the products on which each trademark is used. Compare actual usage with registered goods and services. Provide samples of the use of the trademarks.
9. Provide copies of product advertising and other promotional literature.
10. Check use on Internet of acquired business' name and key trademarks both by Seller and by others.
11. Has there been any non-use of any trademarks? For what periods of time?
12. Identify all non-registered trademarks, the products on which these trademarks are used, and the breadth of such trademarks. Are these trademarks used in interstate commerce?
13. Identify all products that are not covered by a trademark.
14. Have there been any prior assignments of the trademarks? Have the assignments been recorded? Provide documents.
15. Identify all agreements dealing with trademarks, e.g., consent letters, mutual use agreements, licenses or opposition settlement agreements, whether Seller is licensee or licensor. Provide copies. Are they transferable or assignable? Are consents necessary? Termination dates? How is quality controlled? Any restrictions or limitations? Non-compete obligations?
16. Identify revenue streams or payment obligations associated with each license.
17. Are there any restrictions or limitations on the use of the trademark portfolio or third party ownership rights? Check for security interests, e.g., financing agreements or collateral assignments, by searching U.S. Trademark Office and applicable state records, and by obtaining comparable foreign searches.
18. Provide all searches, conclusions, reports and opinions, whether internal or external, that Seller possesses concerning the validity of its trademark registrations, the scope of rights, geographical limitations, expansion restrictions, the infringement of its trademarks by others, and infringement of third party trademarks by its activities. Consider obtaining a professional trademark search.
19. How has Seller enforced its trademarks in the past? What is Seller's trademark notice policy?
20. Provide copies of all correspondence relating to trademark disputes, cease and desist letters, letters alleging infringement, letters threatening lawsuits, or other legal notices received or sent by Seller.
21. Identify all litigation involving the trademarks and provide copies of complaints, answers, motions, judgements, settlement agreements.
22. Does Seller conduct trademark clearance? Provide copies of clearance procedures and any results and/or opinions.
23. Provide correspondence to or from Seller inquiring about a possible license or the status of a trademark registration or application. 24. Provide renewal dates of trademarks. Does any action need to be taken during the transition or due diligence periods to protect the trademarks, e.g. paying renewal fees or responding to trademark office correspondence.
1. Most of the considerations for copyrights also apply to mask works.
2. Identify all copyrighted materials used in or associated with the acquired business. Provide copies of applications and registrations.
3. Check title to and payment of renewal fees (for older copyrights) for copyrights by searching the U.S. Copyright Office records.
4. Identify Seller's procedures for identifying copyrightable material, clearing, using and protecting copyrights, including procedures for deciding whether to mark materials and/or filing registrations.
5. Are work for hire provisions being followed? Provide documents. Has Seller obtained assignments of copyrighted works, e.g., blueprints or software, from consultants and independent contractors? Provide copies.
6. Has there been any modification of any original registered copyrighted work? Provide details.
7. Have there been any prior assignments of the copyrights? Have the assignments been recorded? Provide documents.
8. Identify all agreements dealing with copyrights, e.g., licenses, whether Seller is licensor or licensee. Provide copies. Are they assignable or transferable? Are consents necessary? Termination dates? Any restriction or limitations?
9. Identify revenue streams or payment obligations associated with each license.
10. Are there any restrictions or limitations on the use of the copyright portfolio or third party ownership rights? Check for security interests, e.g., financing agreements or collateral assignments, by searching the U.S. Copyright Office and applicable state records.
11. Provide all searches, conclusions, reports and opinions, whether internal or external, that Seller possesses concerning the validity of its copyright registrations, the scope of rights, the infringement of its copyrights by others, and infringement of third party copyrights by its activities.
12. How has Seller enforces its copyrights in the past? What is Seller's copyright notice policy?
13. Provide copies of all correspondence relating to copyright disputes, cease and desist letters, letters alleging infringement, letters threatening lawsuits and other legal notices received or sent by Seller.
14. Identify all litigation involving the copyrights and provide copies of complaints, answers, motions, judgments, settlement agreements. 15. Does any action need to be taken during the transition or due diligence periods to protect the copyrights?
1. To the extent possible identify all trade secrets and know-how used in or associated with the acquired business. Particularly identify confidential information that Seller acquired from a third party.
2. Identify Seller's procedures for protecting both its own and third party confidential information from disclosure, e.g., site security, contractor and vendor access, sign in logs, badges, keys, marking documents, secure storage for documents, restricted employee access, monitoring obligations to third parties.
3. Identify Seller's procedures for approving release of information in marketing materials, technical publications, at seminars, or in other fora.
4. Identify all agreements dealing with trade secrets, e.g., license, secrecy, or non-analysis, whether seller is licensor or licensee. Provide copies. Are they transferable or assignable? Are consents necessary? Termination dates? Any restrictions or limitations?
5. Are there any restrictions or limitations on the use of the trade secrets or third party ownership rights? Check for security interests in specific trade secrets or "general intangibles", e.g., financing agreements or collateral assignments, by searching applicable state records.
6. How has Seller enforced its trade secrets in the past?
7. Provide copies of all correspondence relating to trade secret disputes, cease and desist letters, letters alleging misappropriation, letters threatening lawsuits and other legal notices received or sent by Seller.
8. Identify all litigation involving trade secrets and provide copies of complaints, answers, motions, judgments, settlement agreements.
9. Identify Seller's document retention policy and procedures. Is the acquired business following these procedures? 10. Provide samples of Seller's employment agreements relating to intellectual property. Does the agreement contain non-compete provisions? Does Seller conduct employee exit interviews? Remind former employees of their confidentiality obligations? Do former employees sign a memo of the exit interview?
1. Provide copies of all agreements dealing with intellectual property rights, such as the following.
2. Research (university) agreements - rights in inventions and secrecy.
3. Consulting agreements - rights in inventions, secrecy, non-compete.
4. Joint venture agreements - rights in inventions, secrecy, non-compete.
5. Joint development agreements - rights in inventions, secrecy, non-compete.
6. Sales, distributor or formulator agreements - particularly general or special warranties and/or indemnifications against patent infringement.
7. Indemnification agreements.
8. Tolling agreements - technical information restrictions, patent immunity.
9. Government contracts - patents/data rights clauses, accounting/record keeping to track government funding or property used.
10. Franchise agreements. 11. Agreement negotiations in progress.
1. Determine whether the transfer of the intellectual property assets, e.g., value of the assets and the size of the parties, requires a Hart-Scott-Rodino filing. 2. Determine whether the transfer of the intellectual property assets complies with the competition and licensing laws of the foreign countries where there are rights, e.g., is notification to the E.U. Commission required.
1. Identify Seller's export control procedures.
2. Export licenses - including validated licenses required for sensitive technologies, e.g. for military use or dual use, and for unfavored regimes, e.g., Cuba, North Korea, Middle East, certain former Soviet Bloc countries.
3. Export Administration Regulations (EAR) of the U.S. Department of Commerce (15 C.F.R. ¤ 370 et seq.), which implement the Export Administration Act (50 U.S.C. App. 2401 et seq., as amended) and regulate commercial and dual use (commercial/military) technology.
4. International Traffic in Arms Regulations (ITAR) of the U.S. department of State (22 C.F.R. ¤ 120 et seq.), which implement the Arms Export Control Act (22 U.S.C. ¤ 2778) and regulate technology that is inherently military in nature. 5. Committee on Foreign Investment in the United States filing where national security/defense technology is involved (Exon-Florio Amendment to Omnibus Trade Act of 1988).
1. Record retention policy and procedures.
2. Record marking policy - required for government contracts.
3. Agreement retention and maintenance policy and procedures.
4. R & D notebooks, records and reports
5. Computer databases and software. 6. Unsolicited ideas policy, procedures and records.
1. Seller's intellectual property legal function and staff - experience, organization and workload. 2. Outside U.S. and foreign counsel used by Seller.
1. Avoid "infecting" Buyer's employees with Seller's technology if transaction does not close. Consider use of independent reviewers.
2. Retaining key employees of acquired business and the know-how they possess.
3. Difficulty in identifying and evaluating assets due to lack of prior knowledge and expertise in the target technology.
4. Ensuring confidentiality and non-use of transferred information, and non-competition by Seller after the transaction. 5. Ensuring intellectual property legal support from Seller during the transition period in order to preserve all rights.
1. Identification of intellectual property assets to be retained by Seller, which may be licensed to Buyer or assigned to Buyer and licensed back.
2. Avoid giving Buyer confidential trade secret and know-how information until after the transaction closes.
3. Ensuring confidentiality and non-use of retained information by Seller's former employees after the transaction.
4. Potential warranty or indemnity liability for transferred technology.
5. Continuing obligations under transferred agreements. 6. Stepped transactions, e.g., parent>sub>JV>divest.
1. Due diligence memorandum and documentation.
2. Post closing review.
3. Recording assignments of U.S. and foreign intellectual property assets. 4. Integrating the acquired business and intellectual property assets into Buyer.
A. Definitions
1. Definition and identification of the various types of intellectual property assets generally is accomplished by the use of schedules.
B. Transfer Provisions
1. Assignment to Buyer of all intellectual property assets and rights used in or associated with the acquired business.
2. Assignment to Buyer subject to reserved exclusive or non-exclusive license for Seller in a field.
3. Exclusive license to Buyer in a field.
4. Non-exclusive (enabling) license to Buyer.
5. Transitional license, e.g., trademark license to use existing inventory of labels, etc.
6. Possible non-exclusive license or cross-licenses for improvements.
7. Assignment to and assumption by Buyer of license rights and obligations held by Seller. 8. Term and termination of patent and know-how licenses.
C. Representations and Warranties
1. The schedules list all material intellectual property assets used in or associated with the acquired business.
2. Seller owns title to the scheduled intellectual property assets, subject only to identified licenses granted to others; and there are no third party claims contesting Seller's ownership.
3. Seller has the right to use all scheduled intellectual property assets in the acquired business and the right to disclose the trade secrets and know-how used in the acquired business; and there are no restrictions on the use of these assets that have not been disclosed.
4. Use of the scheduled intellectual property does not violate any third party rights; and there have been no third party infringement claims against the acquired business.
5. Seller has no knowledge of any defects or other threats, pending or reasonably foreseeable, that will cause the invalidity, unenforceability or other loss of any scheduled intellectual property asset; and all patent, trademark and copyright registrations are currently in force.
6. The loss or expiration of any intellectual property asset or right will not have a material adverse effect on the acquired business or its operations.
7. There are no royalty or other payment obligations associated with Buyer's use of the transferred intellectual property assets that have not been disclosed, and all payments are current.
8. There are no liens, security interests or other encumbrances on the transferred intellectual property assets.
9. Seller has no knowledge of any infringement or violation by third parties of the intellectual property assets transferred to Buyer.
10. The usual contract warranties of "no breach" and "valid and in force", apply to all intellectual property licenses from third parties.
11. Seller has not disclosed any trade secrets or other intellectual property whose value is contingent upon confidentiality without securing an appropriate confidentiality agreement.
D. Other Provisions
1. Mutual confidentiality as to all trade secrets and other confidential information.
2. Allocation of rights and responsibilities for enforcement of intellectual property rights and employee confidentiality agreements.
3. Allocation of responsibilities for recording assignments and prosecuting and maintaining intellectual property assets.
4. Arrangements for delivery of know-how.
5. Arrangements for post-closing support and consulting necessary to transfer the technology. 6. Dispute resolution provisions for intellectual property issues.