What IP lawyers need to know about doing M&A deals

IP lawyers used to fall rather neatly into one of two categories. They were part of stand-alone IP practices advising clients on once-niche areas like patent applications or branding; or they were corporate support attorneys, drafted late into the deal-making process to do due diligence on IP registrations and to check that licenses and assignments were in order.

But that was before IP went mainstream. Now intangible assets have become a primary driver in some of the world’s biggest corporate deals. Businesses are striving to get their hands on what are often their rivals’ most valuable assets: their portfolios of patents, trade secrets, copyright and brands.

The battle for market share in the smartphone and social media sectors, for example, has seen Google and Facebook go on multi-million dollar patent-buying sprees to use as armory in litigation. The slowdown in the development of in-house blockbuster drugs has led to pharmaceutical companies snapping up research operations in their quest for new, patentable molecules. The rise of economic superpowers in Asia has seen Chinese and Indian companies open up their checkbooks to buy brands and know-how to facilitate their expansion.

These trends mean that lawyers with an in-depth understanding of intellectual property are more critical than ever in helping their corporate colleagues get deals done.

Get involved up front

In an AIPLA Annual Meeting session  entitled IP People v. Corporate People – Why Can’t We Be Friends!?, four lawyers will consider what makes the best corporate/IP partnership in M&A transactions and share insights into ways to work together to get deals done as smoothly as possible.

Jeff Wolfson of Haynes and Boone in Washington DC is one of the speakers in the session, and plans to highlight the importance of getting IP lawyers involved from the outset when two parties are negotiating a deal.

“Lots of times IP lawyers are involved late in the process. The later they are involved, the less helpful they can be and the more likely it is that their contribution is limited to saying ‘this deal can’t go ahead,’” Wolfson says. “The earlier they are involved, the more due diligence they can do, the better they can help set the value of the deal so there are no nasty surprises.”

He will also consider some of the practical aspects of managing an IP-heavy deal, given the need for sellers to protect commercially sensitive information during the due diligence stage.

“Ensure the right people are involved. If individuals from the would-be buyer’s company see the IP of the target and then the deal falls through, that puts them in a difficult position.”

Implement safeguards

Wolfson advises buyers not to allow their patent prosecutors to review the IP information of the target, however counter-intuitive that might sound. If they do, and the deal does not go through, then the would-be buyer could find itself in real trouble if the seller’s technological insights wind up in its subsequent IP applications. “If you can, set up ethical walls. Point to separate teams of people. It looks a lot better to a court than having some guy say ‘well I saw their IP but then I never thought of it again’.”

Wolfson also advises companies that are considering spinning off a business or selling a subsidiary to do a health check on its IP in the same way it would get the target’s financial affairs up-to-date. “Some companies clean up their balance sheets and get their finances in order in preparation for a sale. But not all of them do the same kind of preparation for their IP.”

Think “win-win”, not “must-win”

Corporate lawyer Todd Bissett of Canadian firm Borden Ladner Gervais will emphasize the importance of pursuing strategic, commercial objectives during a deal. These can easily be overlooked, particularly by attorneys who approach transactions in an aggressive zero-sum-oriented way.

“Very few business transactions are truly zero-sum games in which the parties are actual adversaries,” he says. “In fact, most are collaborations in which win-win solutions and the building of strong long-term working relationships are important.”

Bringing a must-win mindset to the negotiating table means that deals are often completed in an ineffective way. Sometimes it can cause talks to collapse. Even if a sealed deal looks good on paper, if the parties’ advisors adopted a belligerent tone during the discussions then it could jeopardize valuable relationships between the two businesses.

Bissett says that this issue is often more difficult to address for specialist lawyers–such as IP attorneys–who frequently find themselves advising on key aspects of a deal without being the primary client contact or even having a full view of a complex transaction.

“Communication between the legal teams is critical in these circumstances”, says Bisset.

“It is important for [IP lawyers] not only to advise on the specific legal issues placed in front of them but also to consult with the deal team to gain an understanding of the appropriate attitude or approach to bring to bear in a given transaction or situation.”

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