The Role of an IP Attorney in a Deal AIPLA Corporate Committee The Role of an IP Attorney in a Deal Lacy L Kolo Ph.D. Partner, IP & Technology Group Lacy.Kolo@SquirePB.com 202.457.6051

IP Due Diligence in a Deal Merger & Acquisition Committee Year in a Deal lecture series on topics that come up in IP due diligence Goal: Equip you with information to help with issue spotting, conflict resolution and ways to better support your team Intangible assets are part of every deal, and lack of or poorly conducted due diligence can materially effect the outcome of the deal Why conduct IP due diligence? Discover potential problems Assess material risks See how the risk impacts the deal M&A Committee is dedicated to providing our members with knowledge about this specialized transactional practice Lecture series covers the large topics that an IP attorney should know when involved in a transaction

Topics covered today Scope: The role an IP attorney plays varies by scope and importance of IP to a deal Is IP is a deal driver? Is IP a small component of the deal? Communication: Efficiently and effectively get your message across Staying out of the weeds Communicating issues to others effectively – including those who do not know IP Privilege: Maintaining privilege for analyses and communications regarding the deal

IP Scope Before you start, ask the 5 W’s: WHO WHAT WHEN WHERE WHY

Scope: ask WHAT WHAT are the business goals? Employees and their know-how Contracts and relationships (supply chain, distribution) Patented technology Reputation in the marketplace Non-patent IP related to technology and/or services Goal: Tease out if IP is a core component of the deal, or ancillary to the deal

Scope: ask WHAT WHAT is the structure of the deal? Stock purchase, asset purchase, JDA, other? Stock purchase has different concerns from an asset purchase Example: Asset purchase - must list all IP, including unregistered IP, on schedule Stock purchase - can just put registered IP on a schedule WHAT IP is involved in the deal? Registered IP: Patents Trademarks Copyrights Unregistered IP: Inventions Trademarks Copyrights Trade Secrets Software Contracts Media rights Data Rights

Asking WHAT - applied Scenario 1: Business goal is to acquire a business unit of a company with technology covered by patents and trade secrets. The company is well-known in the industry by its trademarks. Asset deal, so need to make sure all unregistered and registered IP is investigated and listed on the schedules Need to find out if trademarks are part of the deal (purchase or license) Scenario 2: Business goal is to acquire a new company run by former Fortune 100 company employees that your leadership believes are creating the next Fortune 100 company competitor. Stock purchase, so many not need to list all unregistered IP Employee invention needs to be investigated

Scope: Ask WHY WHY ask WHY? Helps you understand what leaders expect your role to be Helps shape scope – if leaders expect a deep dive into the IP, then you should budget time and review accordingly WHY did the business leaders bring you in on the deal? Are they looking for assistance with just confirming the high level issues, such as ownership, chain of title, checking liens, status of IP? Are they looking for assistance with issue spotting on all IP issues? Are they looking for confirmation the IP covering the technology is valid and enforceable?

Communication: ask WHO and WHEN Why ask WHO and WHEN? Asking WHO and WHEN helps prevent ineffective communication, which can lead to disruption, confusion and uncertainty WHO WHO is on the team WHO do you report to WHO is available for responding to questions on your side WHO is available for responding to questions on the other side, and can they communicate directly with you WHEN WHEN are the internal deadlines WHEN are reports generated and pushed out to leaders WHEN is the tentative close Are there any schedule limitations for key players in the deal

Your resources: asking WHERE Why ask WHERE? Helps you discover what document resources are available to you, and if there are other resources that you do not have access to. WHERE WHERE documents located? WHERE do document requests go to? Are there any other documents that you are not seeing? Practice Tip: Sometimes leaders try to limit access to data room to keep people out of the weeds, and only give them limited information. Find out if you are seeing the full data room. Give your leader a checklist of questions or document requests. Offer to run through the list and explain why you feel those questions or requests are important.

Communication: apply the 5Ws Communication golden rules Communicate frequently Communicate consistently Communicate honestly Depending on size of transaction and scope, may want to develop and regularly update a memo discussing the status of IP due diligence review, status, and outstanding questions Once you have confirmed your chain of communication, stick with it Bad news does not smell better with time! Report out new (bad and good) quickly and clearly

Communication: apply the 5Ws Translate into plain English for the non-IP persons For example, compare: Other examples: “patent may be unenforceable due to possible inequitable conduct” “Alice motion” Prior art Documents or publications that were available to the public before the patent was filed Likely invalid under 102 The patent is likely invalid because the invention claimed in the patent was publicly known before the patent was filed

Privileged Information Do you want to access to another party’s attorney-client privileged information, or allow your privileged information to be reviewed by the other side? Pros and cons: May save the reviewer significant time and money Information may highlight nuances of an issue that the reviewer may not be as familiar with Disclosure of privileged information to a third-party will result in a waiver of the attorney-client privilege, whether or not the transaction is consummated

Privileged Information How do you handle privileged material? Ask the party with the privileged information to give non-privileged summaries based on publicly known or non-privileged information Handle risk in the reps and warranties Enter into a common interest agreement

Privilege: Common Interest Agreement Idea: disclosure of privileged information to a third party will not result in a waiver if the third party has sufficient community of legal interest with the disclosing party Question: Can the parties enter into an enforceable common interest agreement that will protect the privilege if challenged? Answer: It depends Have to show that the asserted interest is legal and not solely commercial. In other words, it is highly dependent upon the facts and circumstances Highly dependent on the jurisdiction

Privilege: Common Interest Agreement Some jurisdictions are more favorable to common interest agreements Delaware New York Other jurisdictions, outcome is more uncertain Schaeffler v. U.S., 806 F.3d 34 (2d Cir. 2015) Schaeffler Group entered into an €11 billion loan agreement with a consortium of banks to finance an offer for Continental AG’s stock. The Schaeffler Group shared its attorney-client privileged and work product materials on tax issues and the potential for IRA challenge with the bank consortium under a confidentiality agreement IRS issued a subpoena, but the Schaeffler Group withheld those privileged documents on the basis of the common interest privilege and work product doctrine Second circuit: Privilege was NOT waived - this was a “legal problem albeit with commercial consequences”

Privilege: Common Interest Agreement Practice tips Vet common interest agreement carefully, and ensure the agreement extends obligations into perpetuity Be cautious – assume disclosure of privileged information will result in privilege waiver Only disclose information where risk of privilege waiver is clearly outweighed by the need for efficiency or cost-savings Identify each privileged document to be disclosed If possible, see what non-privileged information can be given to help the reviewer conduct their own legal analysis If leaders decide disclosure is necessary, delay disclosure to end of negotiations (deal can fall through!) and only disclose among attorneys, not among non-attorneys Supports the position that the privileged disclosure is for a common legal interest instead of a purely economic interest

Privilege: Does the privilege transfer? Scenario: One company acquires another, does the attorney-client privilege transfer to the purchaser? Fully acquires the company – yes Acquisition of assets – it depends Privilege can transfer to the purchaser if they acquire enough of the prior company, or if common interest doctrine can be applied Very fact specific

Conclusion Always ask the 5 Ws to find out the scope of the deal and your role Communicate frequently, consistently, honestly, and in plain English Watch for privilege waiver

Questions?