Академический Документы
Профессиональный Документы
Культура Документы
acquisitions
Presented by
Adam Liberman
Partner, Freehills, Sydney Australia
14 October 2003
Singapore
Overview
What is IP?
Key features of IP
Case Study 1
Case Study 2
Due Diligence
Delays because IP is not in order
Overview
What is IP?
Legal perspective
Copyright
Design
Patent
Trade Mark
Trade Secret
What is IP?
Lay perspectives
Those rights that are available to protect
your knowledge and the products of your
knowledge from unauthorised use by others
Those rights that are at a legal basis for
providing a business with sustainable
competitive advantage
Key Features of IP
Divisibility
International asset
Different laws apply in different jurisdictions
Payment does not necessarily give rise to
ownership rights
Owning the physical object is different to
owning the intellectual property rights
relevant to that object
Case study 1
Prologue
We have watched a consensus build over the last 10
years or so, but it has taken a small revolution to create
an agreement around the notion that intellectual
property represents in the words of Fortunes Tom
Stewart the only sustainable competitive advantage
in business today, and further that intellectual property
merits placement at the very heart of corporate
consciousness.
(John Shaw and Ed Kahn, Hidden Value:
Profiting from the Intellectual Property Economy)
Case study 1
Cast
BMW
Bidder for Target
Manufacturer of engines
for V12 Rolls Royce
Silver Seraph and V8
Bentley Arnage
Case study 1
Show me the money
Net tangible assets of Rolls Royce Motor
Cars Ltd approximately $US250 million
Total amount agreed to be paid by VW
approximately $US790 million
Case study 1
The story
Rolls Royce Motor Cars Ltd manufactures
Rolls Royce and Bentley cars
Rolls Royce Motor Cars Ltd put up for sale
October 1997
BMW offers $US560 million, 30 March 1998
VW offers $US710 million, 7 May 1998
VW offers $US790 million, 3 July 1998
Case Study
The story
What VW thought it had bought for $US790
million
Factory located at Crewe
2,400 skilled workers
Bentley trade mark
Rolls Royce trade mark
Continuous access to engine supply
No due diligence conditions
10
Case study 1
The story
The twists
On 9 July 1998 Rolls Royce Plc advised VW of 1973
licensing agreement that gave it exclusive control over
the Rolls Royce trade mark in the event of sale to a
foreign buyer
By 9 July 1998, BMW gave 12 months notice of
termination of engine supply agreement
BMW obtained licence from Rolls Royce Plc to Rolls
Royce trade mark for $US65 million in the form of a
redeemable loan note to be used as investment in new
JV company between BMW/Rolls Royce Plc
11
Case study 1
The story
What VW ultimately ended up getting for $US790
million
Factory located at Crewe
2,400 skilled workers
Right to use Bentley and Rolls Royce trade
marks and to make Rolls Royce and Bentley cars up
to 1 January 2003
After 1 January 2003, BMW to have exclusive right
to Rolls Royce trade mark and right to
manufacture Rolls Royce cars
Engine supply assured
12
Case study 1
Moral of the story
The CEO of VW should have read the Prologue
When you pay for more than the value of net tangible
assets, intellectual property rights will always be an issue
that needs to be properly investigated and dealt with
Intellectual property can be a very powerful strategic
weapon in a takeover environment
Just because a deal involves a share sale rather than an
asset sale does not mean that IP issues are any less
significant
There is no accounting for how ill advised even supposedly
savvy corporates can be, when it comes to IP
There is no substitute for doing a proper IP due diligence
13
Case study 1
How the story should have gone
The Missing Due Diligence Scene
List all material trade marks, owned,
used or required in the business of each
group company, whether registered or not,
including trade marks for which
applications for registration have been or
are to be lodged within the next 3 months.
14
Case study 1
How the story should have gone
The Missing Due Diligence Scene
List all material inventions, and patents
owned, used or required in the business of
each group company including
applications for patents which have been
or are to be lodged within the next 3
months.
15
Case study 1
How the story should have gone
The Missing Due Diligence Scene
Please supply copies of all agreements
under which any group company licenses
any intellectual property rights to or from a
third party.
16
Case study 1
Critics Corner
Simple car chase no complex IP issues
What about more complex plots/IP issues?
17
Case study 2
Cast
Dynamic Explosives Pty Ltd Target
Dynamic Products Australia Limited Seller
Technology Explosives Limited Purchaser
(South African)
18
Case study 2
Cast
19
Case study 2
Story
Dynamic Explosives purchases Master
Blasters Australian patent portfolio for
$A50 million.
Later, Technology Explosives makes an offer
to Dynamic Products to purchase shares in
Dynamic Explosives for $A100 million. The
offer would have been lower had the Master
Blasters patents not formed part of Dynamic
Explosives assets.
20
Case study 2
The question
You act for Technology Explosives, what
questions would you ask of Dynamic
Explosives and what actions would you take
to substantiate the value of the Master
Blaster patents to Dynamic Explosives and
that Dynamic Explosives activities do not
infringe any third party patents?
21
Case study 2
Moral of the story
When you pay more than the value of the net
tangible assets, intellectual property rights will
always be an issue that needs to be properly
investigated and dealt with
Intellectual property can be a very powerful strategic
weapon in negotiating an acquisition
Just because a deal involves a share sale rather
than an asset sale, does not mean that IP issues are
any less significant
There is not substitute for doing a proper IP due
diligence
22
Due diligence
What is a due diligence?
Sellers perspective
Purchasers perspective
23
Due diligence
What is a due diligence?
A close examination of certain subject
matter e.g. rights, agreements etc usually
in the context of a proposed transaction.
24
Due diligence
Sellers perspective
Aims
Process
25
Due diligence
Sellers perspective Aims
Establish an inventory/value of IP separately
from any proposed transaction update
regularly makes it easier when a transaction
does come along (Being Prepared Approach)
Ensure that seller knows what it has and its
problems before allowing a potential
purchaser to investigate fix things if
necessary - minimise risk (No Surprises
Approach)
26
Due diligence
Sellers perspective Aims
Anticipate purchasers requirements
(Facilitate the Transaction Approach)
Prepare sale and purchase contract
(Facilitate Contract Preparation Approach)
27
Due diligence
Sellers perspective Process
Stage 1 before interacting with purchaser
Who is responsible?
Gathering information questionnaire must
be prepared by someone who knows the
sellers business and IP law
Gathering information identification of
proper recipients of questionnaire
28
Due diligence
Sellers perspective Process
Stage 1 before interacting with purchaser
Management at highest level must
embrace/convey importance must be KPI
of those involved
Review response to questionnaire
Ask further questions/test answers
Interact with management on significant
issues
29
Due diligence
Sellers perspective Process
Stage 1 before interacting with purchaser
Prepare data room
Interact with those preparing contract for
seller
Prepare data room inspection agreement/
confidentiality agreement
Identify person within sellers organisation for
answering IP issues relating to purchasers
due diligence
30
Due diligence
Sellers perspective Process
Stage 2 interacting with purchaser
Implement data room inspection agreements/
confidentiality agreement
Time limit for purchasers due diligence
investigations
Communicate with management on significant
issues arising from purchaser interaction
Communicate with those preparing contract for
seller arising from purchaser interaction
31
Due diligence
Purchasers perspective
Aims
Process
32
Due diligence
Purchasers perspective Aims
Identify IP rights that are held by target either
as owner or licensee
Assess targets IP rights in relation to its
competitors
Assess targets IP rights in relation to
purchasers IP rights
Determine the scope of targets IP rights
33
Due diligence
Purchasers perspective Aims
Determine the extent to which targets IP
rights are capable of being transferred by
target
Determine the extent to which targets IP
rights are required to be transferred or
sourced from a party other than target
34
Due diligence
Purchasers perspective Aims
Determine the extent to which targets IP
rights are subject to rights/claims by third
parties and assess the risks arising
Determine a monetary value for targets IP
rights
Determine the extent to which targets IP
rights are valid and assess risks arising
35
Due diligence
Purchasers perspective Aims
Input the results of the above into the
requirements of purchaser so far as sale and
purchase contract is concerned
36
Due diligence
Purchasers perspective Process
Data room inspection agreement/confidentiality
agreement reviewed by purchasers lawyers and
signed by purchaser
Inspect data room, if there is a data room
Prepare questionnaire to be sent to seller should
be developed from discussions between
purchaser/lawyer i.e. whatever standard
questionnaire the lawyer has should not be used
without the input from purchaser and input from
data room documents, if any
37
Due diligence
Purchasers perspective Process
Review response to questionnaire/ask
further questions
Investigate competitors IP and purchasers
IP in light of Targets IP
Communicate with management on
significant issues arising from above
Communicate with those negotiating contract
for purchaser on significant issues arising
from above
38
Due diligence
Purchasers perspective Process
Maintain archive of all IP due diligence
documents
39
Due diligence
Keypoint
Whether looked at from a sellers perspective
or a purchasers perspective, due diligence
investigations should not only have the
traditional transactional and risk
management focus, but also a wider
strategic focus
40
41
42
Acquisitions/Divestitures
Some Golden Rules
Do not use warranties relevant to tangible
assets for intangible assets
Use warranties relevant to the type of IP
being transferred
Warranties as to ownership may not be
sufficient, warranties as to right to use and
allowing others to use may be more
important.
43
Acquisitions/Divestitures
Some Golden Rules
Make sure warranties cover all relevant
forms of IP subject matter e.g. common law
trade marks, trade mark applications and
registered trade marks
Make sure you take into account that the
forms of assignment required to be lodged at
IP registries differ from jurisdiction to
jurisdiction
44
Acquisitions/Divestitures
Some Golden Rules
Make sure that you consider what post
assignment obligations are required e.g. in
the case of patent or trade mark applications
45
Valuation
Cost approach
Reproduction/replacement cost
Market approach
Comparable market transactions
Market licence/royalty method
46
Valuation
Income approach
Residual from business enterprise value
method
Relief from royalty method
Capitalised earnings method
Reasonableness check
Industry rules of thumb
reconciliation to enterprise value (market
cap plus net debt)
Source: Deloitte Touche Tohmatsu
47
Valuation
Keypoint
Obtaining a proper and independent
valuation of IP assets is one of the crucial
elements to a successful M&A transaction
48
Assignments
Is purchaser bound by licences granted by
seller?
Are licences entered into by seller as
licensee, assignable to purchaser?
49
Assignments
Is purchaser bound by licences granted by
seller?
Copyright
Designs
Patents
Trade marks
50
Assignments
Are licences entered into by seller as
licensee, assignable to purchaser?
Just because a licence is silent on whether
the rights under it are assignable, do not
assume that they are assignable.
51
Assignments
Are licences entered into by seller as
licensee, assignable to purchaser? US
position
Non-exclusive patent licence not
assignable without licensors consent
Exclusive patent licence no concluded view
by the US courts
52
Assignments
Are licences entered into by seller as
licensee, assignable to purchaser? US
position
Non-exclusive copyright licence
non-assignable without licensors consent
Exclusive copyright licence no concluded
view by the US courts
Non-exclusive and exclusive trade mark
licences depends on the fact, but quality
control provisions can be a significant factor.
53
Assignments
Keypoints
Different types of IP deal differently with the
issue of whether a purchaser of a particular
type of IP is bound by the licences granted
by the seller of that IP and this issue also
needs to be considered on a jurisdiction by
jurisdiction basis
Different jurisdictions deal with the
entitlement to assign the benefit of IP
licences on different bases
54
Conclusion
Whether viewed from the perspective of a
seller or purchaser, and whether viewed in the
context of a share sale or asset sale, if IP
issues are not properly considered and dealt
with in a timely manner, they can cause: the cost and time for completion of a deal to
blow out to unacceptable levels
55
Conclusion
a deal to collapse
problems to arise following closing of a deal,
which make the deal unattractive or
unprofitable
56
www.freehills.com