Conducting adequate due diligence for intellectual property (IP) in the context of mergers and acquisitions can depend heavily on the nature of the deal, the company being acquired, and the specifics of the transaction. Complications arise particularly in situations where the subject of the acquisition is a start-up or a company in its early development stages.
Ownership issues related to IP developed by the founders or employees of the start-up constitute a significant part of these complexities. By gaining a thorough understanding of these issues, corporate lawyers can effectively mitigate potential risk areas related to IP ownership.
Often, the start-up company may have been established by founders from academia or those who have been involved in government-funded projects. The inquisitive lawyer must establish whether or not the start-up’s development was parts of a research project, sponsorship, grant or any form of collaboration which may be governed by an agreement. For instance, such an agreement might assign the IP developed by founders to a corporation, university or government entity.
If the IP is not subject to such an agreement, but was developed using substantial resources from an educational institution, the IP might be owned by or subject to the rights of that institution. Hence, the examining lawyer must ask about the history of the target firm, and where appropriate, should review any IP policies of institutions attended by the company founders, along with all relevant agreements and their IP ownership provisions.
For the effective due diligence of start-ups, lawyers may also encounter target companies that have not obtained IP assignment agreements from all employees and contractors engaged in IP development.
Furthermore, a target company may have received flawed IP assignment agreements that are not comprehensive. For instance, the agreement may state that the company owns developed IP but may omit preferred active assignment language from current case law.
This omission can have vast implications on the target company’s IP ownership position, especially if its personnel have been involved in the development of patent applications or inventions that could potentially be patented.
Situations like these usually occur when start-ups fail to engage legal counsel at the inception stage, or when they repurpose IP assignment forms found online. To spot these issues during the due diligence phase, lawyers must review any available IP ownership documentation from the target company.
The article also covered IP assignment agreements particularly where a target company has executed IP assignment agreements, and how buy-side lawyers should carefully review these to identify any possible exceptions and assess their applicability to the target company’s business.
The full article, featuring in-depth analysis by Paisley Piasecki, a corporate associate at Debevoise & Plimpton, and Henry Lebowitz, corporate partner at the same firm, can be perused here.