1. Corporate Transactions for IP Lawyers The Impact of IP on Corporate Transactions EFFECTIVE IP DILIGENCE: PROCESSES FOR CORPORATE TRANSACTIONS Maria S. Spustek IP Partner Schnader Harrison Segal & Lewis LLP One Montgomery Street, Suite 2200 San Francisco, California 94104-5501 001.415.364.6742 mspustek@schnader.com

2. What is IP Diligence? Managing business risk Managing business risk Analysis of Target’s IP Analysis of Target’s IP – Ownership (the Holy Grail) – Right to Use – Right to Stop Others from Using

3. What is IP Diligence? (con’t) Context of the Business Transaction Context of the Business Transaction – Investment/Financing – Acquisition or Merger – Licensing Different Interests and Goals Different Interests and Goals Business always drives outcome (!) Business always drives outcome (!)

4. Why is IP Diligence Important? Knowledge is Power Knowledge is Power – Assists in Transaction Valuation – Highlights Potential Showstoppers – Creates Leverage Role Play Role Play – Strategically Fix “Problems” – Before Revealed as Weaknesses

5. Why is IP Diligence Important? (con’t) Process More Important than After-the-Fact Analysis Process More Important than After-the-Fact Analysis – Different End Goals Likely – Target’s Success ≠ Drive Purchaser to Complete the Deal – Better Developed and Protected Portfolio = Greater Chance of Closing a Win-Win Deal

6. Practice Pointers Create a Team Create a Team Familiarize the Team with Relevant Background Information Familiarize the Team with Relevant Background Information Check and Cross-Check Check and Cross-Check – Personnel Interviews – Document Review – Independent Record Review

7. Create a Team Team Members Team Members – In-house counsel IP or corporate? IP or corporate? – Outside counsel IP and corporate? IP and corporate? – Management Directly involved with internal strategy regarding negotiations Directly involved with internal strategy regarding negotiations – Senior technical person(s) Directly familiar with technology and product line(s) at issue Directly familiar with technology and product line(s) at issue

8. Create a Team (con’t) Don’t reinvent the wheel (!) Don’t reinvent the wheel (!) – Use 3 rd party resource checklists – Deviate when necessary Drill-Down on specific IP sub-areas Drill-Down on specific IP sub-areas – Assess Strength, e.g., for Patents Breadth of patent claims Breadth of patent claims Design around options Design around options Infringement by competitors Infringement by competitors One Team Member to Coordinate One Team Member to Coordinate – Act as Liaison between IP sub-specialties and Team’s goals, process and end result

9. Familiarize with Relevant Background Information Target’s Industry Target’s Industry Type of IP & Interplay with Target’s Industry Type of IP & Interplay with Target’s Industry – Pet food vs. integrated circuit design Nature of Deal Nature of Deal – Context, purpose, key terms Practical Considerations Practical Considerations – Target’s policies and practices Look for the “Fit” between Target’s IP with Purchaser’s business goals Look for the “Fit” between Target’s IP with Purchaser’s business goals

10. Check and Cross-Check Verify information learned through multiple sources Verify information learned through multiple sources – No surprises (!) – Set internal timeframe for completion “Getting Ready” for responding to Purchaser’s Due Diligence Requests “Getting Ready” for responding to Purchaser’s Due Diligence Requests Anticipate… Anticipate…

11. Personnel Interviews Target’s knowledgeable employees and consultants Target’s knowledgeable employees and consultants – Attorney client privilege Others at Target with potentially relevant information Others at Target with potentially relevant information Former employees and consultants? Former employees and consultants?

12. Document Review Analyze all information and documents Analyze all information and documents Determine relevance Determine relevance Organize in logical fashion Organize in logical fashion – Create easy to follow tables, charts – Highlight key provisions, e.g., Ability to assign in light of change of control Ability to assign in light of change of control Notice periods Notice periods

13. Independent Record Review USPTO and WIPO USPTO and WIPO US Copyright Office US Copyright Office Patent annuity and maintenance fee records Patent annuity and maintenance fee records Assignment records Assignment records Prosecution files Prosecution files UCC filings UCC filings Internet and other resources Internet and other resources Applicability of foreign laws Applicability of foreign laws SEC filings SEC filings

14. Conducting IP Diligence Key Questions Key Questions – What is the Target’s IP? – Who owns it? – Valid and enforceable? – Restrictions? – Prosecution defects? – Litigation – actual or anticipated? – Security interests or liens? Properly perfected and enforceable? BFPs?

15. The IP and its Owner(s) Identify and inventory Identify and inventory – Every IP asset – Owned by or used in Target’s business – Every supporting document – Include inbound and outbound licenses Categorize by Target’s products and services Categorize by Target’s products and services – Past, present, future Keep format easy to understand Keep format easy to understand

16. Nature and Scope of the Target’s Claimed Rights in its IP Independently confirm Independently confirm – Ownership – Scope of rights in Derivative works Derivative works Tech support services Tech support services Notice period Notice period Non-solicitation and Non-compete Non-solicitation and Non-compete – Availability of comparable technology – Ability to second source

17. Validity of the Target’s Rights Type specific Type specific Assess relative strength Assess relative strength – Trade secrets Employee and 3 rd Party Consulting Agreements Employee and 3 rd Party Consulting Agreements NDAs, IP Assignments, entrance/exit interviews NDAs, IP Assignments, entrance/exit interviews Card swipe and Firewall policies and procedures Card swipe and Firewall policies and procedures Evaluate internal IP maintenance programs Evaluate internal IP maintenance programs – Written policies – Compliance procedures – (Unwritten) practices Corrective measures? Conditions to closing? Corrective measures? Conditions to closing?

18. Restrictions on Transferability Fully assignable Fully assignable Prior obligations Prior obligations – Notice period – ROFR – Not to “competitor” – Termination prerequisites “For cause” vs. “no cause” termination “For cause” vs. “no cause” termination Other issues Other issues – BFPs – Open source – Annuities and other fees

19. IP Infringement Claims and Other Issues Why important? Why important? – Reps/Warranties – Indemnification By Target and by individual founders By Target and by individual founders Past, present, or anticipated disputes Past, present, or anticipated disputes – Which companies (specific products/services) compete? Both vantages (!) Both vantages (!) Actually protect in a commercially relevant manner? Actually protect in a commercially relevant manner?

20. Wrap-Up Multitude of factors and players Multitude of factors and players – Transaction specific Even for separate deals for same Target Even for separate deals for same Target – Drill down – Keep it real – Be cost sensitive – Be malleable Job isn’t over until closing docs signed and post close details completed Job isn’t over until closing docs signed and post close details completed

21. Thank You!