Law Times

Page 8 February 2, 2015 • Law Times www.lawtimesnews.com IP a key part of due diligence in transactions Lawyers urged to think broadly about the range of assets at stake By marg. Bruineman For Law Times he name of a busi- ness is often one of the main trade- marks a company uses. So if the name is an important aspect of the purchase of a business, proper trademark registrations need to be part of the due diligence. "Intellectual property is starting to get greater atten- tion in transactions," says Brian Chau, an intellectual property lawyer at Norton Rose Fulbright Canada LLP. What's key, he notes, is iden- tifying the most relevant assets, whether they're from the target's current business or one the buy- er is seeking to develop for the future. Volkswagen's acquisition of Rolls-Royce and Bentley still stands as a cautionary tale about the importance of thorough due diligence in order to ensure the purchase agreement captures what the buyer wants. When buying Rolls-Royce and Bentley back in 1998, Volk- swagen failed to identify that in purchasing the intellectual prop- erty assets, they didn't include the right to use the Rolls-Royce trademark. It wasn't until af- ter the deal closed that Volk- swagen realized that while it had acquired all of the rights needed to manufacture the car, Rolls-Royce PLC, the air- craft engine company, owned the Rolls-Royce trademarks rather than Rolls-Royce Ltd., the automotive company Volkswagen had purchased. Rolls-Royce Ltd. had leased the Rolls-Royce trademarks under a licence agreement that terminated when Volk- swagen acquired it. The name may be just the beginning of due diligence around intellectual property during the acquisition of a business, however. And while things such as patents and trademarks are traditionally part of that process as well, an intellectual property search increasingly veers in other directions and, depending upon the purchaser's interests, desires, and budget, the lawyer may peer into hidden corners to reveal some surprises. "Patents and trademarks are sort of obvious things" covered in agreements, says John Simp- son of Toronto's Shift Law. But there are many other assets to examine such as trade secrets and confidential information, he notes. The company might be of particular interest to the pur- chaser because of its unpub- lished software or applications or perhaps there's a work that's still in progress. Under an em- ployment agreement, an inven- tion belongs to the company rather than the employee. Dur- ing canvassing of the company and its employees, the parties can identify projects that are still in the drafting stage or are imminent but not yet filed. It's not the tables and chairs that are of primary interest in the purchase of a restaurant, Scot Patriquin, a partner at Brauti Thorning Zibarras LLP, points out. "You're buying a package of rights," he says. "A good lawyer is going to do all the work to ensure all the rights are secured. It's all about depth in the appropriate areas." The intellectual property rights most relevant to the deal take priority. The table manage- ment software might be of par- ticular interest to the buyer of a restaurant, says Patriquin in of- fering up an example. That then requires a search of the devel- oper and the related rights and a look at whether the restaurant owns the software. Assessing the purchaser's needs, wants, and interests in the business determines where the lawyers will look and what they need to concentrate on. It may take them overseas, which means navigating laws in differ- ent jurisdictions. "A quick mapping exercise may be conducted between transaction drivers like product lines, services, corporate infra- structure, identified deal syner- gies, growth areas, jurisdictions to determine linkages and intersections with IP," says Chau. Establishing that the rights promised actually exist is part of the process as is track- ing the chain of ownership back to its origin. Asking the right questions and referring to checklists and guidelines, says Chau, will establish that these things exist and help cover all of the necessary bas- es and mitigate the risks. In addition to checking all of the relevant public data- bases, lawyers should canvass unregistered rights, such as unregistered trademarks and copyrights, as well as unpub- lished rights for which appli- cations are pending. "This includes ideas and applications that are not yet published or even filed for," says Chau. "For example, if there is a key inventor at a company, a buyer needs to capture his or her upcoming inventions through sound IP clauses in employ- ment contracts. The question of whose idea is it should not be left unanswered, and any relevant work products should be identi- fied, considered, and captured." "In a lot of cases, it's know- how that's used in technology," says Simpson. "There are so many innova- tive businesses. The way they operate, that could be very valu- able information in and of itself. . . . Find out what's under the hood and tie a bow around it. Confidential business informa- tion is much more amorphous than patents and trademarks and is harder to identify, harder to put a fence around." The key is identifying the important assets, documenting them, and then ensuring the agreement covers them. Simpson advises clients that confidential business information can be very valuable and involve something as simple as the com- pany's manuals. As well, inter- viewing the employees could pro- vide further clues on what's spe- cial about the property, he notes. Software, of course, has be- come a very important and valu- able asset for some businesses. An issue could arise when it involves a contractor. Unlike an employee, contractors hold the copyright for their own work. In other cases, the situation could involve open-sourced software that no one can own. "As often happens, a buyer thinks it's getting the software and it isn't," says Simpson. LT 'Intellectual property is starting to get greater attention in transactions,' says Brian Chau. Focus on Intellectual Property Law Untitled-1 1 2015-01-23 11:55 AM T

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