知识产权资产的尽职调查

20 INTELLECTUAL PROPERTY TODAY JANUARY, 2003 BY EDWARD A. MEILMAN AND JAMES W. BRADY, JR. OF DICKSTEIN SHAPIRO MORIN & OSHINSKY LLP Edward Meilman is a partner in the Intellectual Property Practice of the Firm’s Technology Group in New York City. He grad- uated with an AB degree in chemistry from the University College of Arts and Science, New York University and with a J.D. degree from New York University School of Law. He focuses his practice on intellectual property as it pertains to patents, trade- marks, copyrights, and unfair competition. In the area of patent procurement, he con- centrates primarily on chemical, pharma- ceutical, and biotechnology matters, but in the areas of litigation, counseling, licens- ing, and acquisition of rights, he handles matters pertaining to all technologies. Practice Areas: Intellectual Property, Technology Group; procurement, litigation, counseling. James Brady is a partner in the Intellectual Property Practice of the Firm's Technology Group in Washington, D.C. He has a B.S. degree in environmental engineering, with highest distinction, from The Pennsylvania State University, and a J.D. degree from Cornell Law School. James Brady is a Member of the Board of Directors of the Federal Circuit Bar Association, serves on the Continuing Legal Education (CLE) Committee of the Bar Association, and has been responsible for the Bar Association's CLE programs for many years. He focuses his practice on intellectual property law with an emphasis on patent opinions and client counseling, patent pro- curement, and IP litigation and business transactions. James Brady's technical area of special- ization is life sciences, including pharma- ceuticals, and all spects of biotechnology and chemical inventions. Practice areas: Intellectual Property, Technology Group; procurement, litigation, counseling. T he process of gathering informationand assessing the merits, issues, andrisks associated with a business trans- action is called “due diligence.” It is a crit- ical exercise in the acquisition and strate- gic utilization of intellectual property assets. Due diligence is a necessary pre- cursor to funding a new venture, and is crit- ically important in many other business transactions, including mergers, acquisi- tions, licenses, initial public offerings, and in some instances litigation. In recent years, the commercial impor- tance of patents and other intellectual prop- erty has become highly visible. Courts have imposed large damage awards for intellec- tual property misuse and infringement. Multi-million dollar judgments are no longer a rarity. Courts have also granted significant injunctions to limit the products which a company can market. For instance, Kodak was virtually eliminated from the instant camera market and subject to an extremely high damage award when it was found to infringe patents owned by Polaroid. As a result of these potential events, and the increasing value of intellec- tual property assets in today’s high technol- ogy society, intellectual property matters have become an important aspect of a tra- ditional due diligence study. UNDERSTANDING THE TRANSACTION – IDENTIFYING THE COMPANY’S SHORT AND LONG TERM BUSINESS GOALS “Due diligence” involves asking ques- tions, interviewing people with knowledge about relevant matters, obtaining and reviewing relevant documents, and obtain- ing information from independent sources. Before this can be done effectively, it is essential to understand the nature of the potential transaction and the companies involved from both a business strategy and scientific technical point of view, including any time or cost constraints imposed on the information gathering process. Only by understanding the strategic business objec- tives of the client can counsel direct due diligence efforts to identify those issues that may be material to the transaction, and work to resolve those issues in a manner that helps the client attain its business goals. Many times weaknesses in a com- pany’s intellectual property position can be remedied prior to completing the transac- tion if these weaknesses are identified by a due diligence counsel who is keenly aware of his or her client’s short and long term business goals going into the transaction. The nature of the transaction and the companies involved affects the amount of intellectual property due diligence that is appropriate under the circumstances. For example, a start-up computer software com- pany will typically require more emphasis on intellectual property than a manufac- turer of a well established commodity. Likewise, the importance of the different types of property (i.e., patent, trade secret, trademark or copyright) can vary widely depending on the nature of the business or industry. If the transaction concerns a pub- lisher or a television news organization, a detailed investigation into its procedures for avoiding copyright infringement would be in order. On the other hand, companies that market consumer products typically require a close look into trademark and design patent issues. Companies in the chemical and pharmaceutical industries typically require an analysis of trade secret and know-how issues. In biotechnology, it is likely that patents will be a major valu- able asset under review. The nature of the transaction, the companies involved and their business goals greatly affect the scope of a due diligence study and also the make- up of the team assembled to conduct the study. Whether the transaction involves inter- national aspects or only domestic aspects is another factor that must be considered. For instance, the United States is generally more liberal in protecting inventions involving living matter (biotechnology) and software (business methods) than many other countries. The diagnosis and treat- ment of human beings is not considered to be patentable in some countries. Licenses which are enforceable in the United States may need to be recorded to be similarly enforceable and protect the underlying intellectual property in other countries. For instance, use of a trademark by a licensed but unrecorded licensee can lead to the loss of the trademark right in some countries but not in other countries. In the EEC, one can- not prohibit a trademark licensee from challenging the validity of the licensed mark, while that is generally prohibited in the United States. While databases are gen- erally not copyrightable in the United States, the EEC issued a Database Directive in 1996, and some European countries (e.g., Great Britain, France, and Germany) now have database copyright laws in place. Due Diligence in Business Transactions Involving Intellectual Property Assets It is impossible to definitively set forth the parameters which will be applicable to every type of due diligence study. Check lists abound. However, no check list can be relied upon blindly without due considera- tion of the company’s business goals and how they relate to the transaction at hand. Every transaction is different. For some due diligence studies, a particular check list will be overly broad or will be deficient; important information may be missed if such a check list is followed without the exercise of independent judgment based on the short and long term business objectives of the company going into the transaction. For some transactions, a particular check list may also be too detailed and strict adherence to it could potentially get in the way of consumating an otherwise viable and important transaction. While a sample due diligence check list is provided at the end of this article, it is important to keep these considerations in mind. Although there is no definitive check list for all studies, intellectual property due diligence generally seeks to gather infor- mation to shed light on: • What intellectual property assets does the company have, and are there any problems relating to ownership or control of those assets? • What is the economic and strategic value of the target intellectual property? To what extent does it provide effective exclusivity in the market for the com- pany’s products or services. What are the potential licensing or other strategic uses of the intellectual property? • Does the company have potential liabil- ity for infringing the intellectual prop- erty rights of others? Can it market its products or services without infringing the rights of others? The ownership of intellectual property assets requires a clear chain of title from the inventor, author, or previous owner, and also the recordation of assignment docu- ments in the appropriate public records. In many transactions, otherwise valuable intellectual property assets are weakened or lost by the lack of an assignment of all interests from all of the correct inventors, creators, or authors, or by the existence of liens or security interests that encumber the assets. These factors also can affect the ability of a company to control the intellec- tual property. For example, even if there is a very valuable copyright in existence, it may be a joint work where each author owns an undivided part of the property. A co-author who is not an employee or not under an obligation to assign ownership can then diminish the value of the copyright to the company by granting rights to another entity. In addition, contracts granting rights in intellectual property must be reviewed to identify geographic or other restrictions on a company’s ability to use what it believes to be its portfolio of current or potential intellectual property assets. The economic value of intellectual prop- erty depends on the type of intellectual property and its scope, including the extent to which it is limited in terms of geography, time, or potential contractual restrictions. The strategic value of the property depends on how well it fits with the company’s busi- ness objectives and whether it can be effec- tively enforced against others in the industry. The business decision maker can evaluate the strategic value after he or she is fully informed of the intellectual prop- erty’s character, scope, validity, enforce- ability, and limitations. A due diligence study of intellectual property is designed to provide critical information based on the scientific and business purpose of the transaction so that the business decision maker can make an informed decision about the potential transaction and, if pos- sible, so that any weakness can be reme- died in order to guide the transaction toward fulfillment of the client’s ultimate business goals. The scope of intellectual property involves widely different substantive issues depending on the type of property. The scope of a United States utility patent, for example, depends on its claims, which are the numbered sentences at the end of the patent document. The number of claims is much less important than the scope of the claims. A patent with a single claim may be more valuable that a patent with 20 claims. Generally speaking, the broader the claims, the broader the scope of the patent. However, breadth, standing alone, can be misleading. The most important aspect and what must be considered is whether the claims of the patents provide a useful scope of protection, or whether they can be easily designed around. A patent with broad claims may prohibit competition by similar products, yet still not prevent competition by all alternative products. If alternative products can compete effectively with the patented technology without infringing the patents, then the patents might have rela- tively little value even though they cover a large area. It is important to verify a com- pany’s expectation that its patents cover particular products and also to confirm that alternatives are not readily available to compete with these products. In many due diligence studies, this part of the analysis also involves a determination as to the validity of key patent claims. Patents observe national boundaries. The EEC has a system in which a single patent application is processed until it is allowed, and then individual patents having the same text are registered in individual countries. What is commonly called a “European Patent” is not a patent at all, but rather a publication of an allowed patent application. Similarly, what is sometimes referred to as an international patent, is also not a patent at all, but rather a pub- lished application filed under the Patent Convention Treaty (PCT) and which must then be filed as an application in each indi- vidual country or the EEC before it can be processed into a real patent which provides a measure of exclusivity to its owner. In addition to being nationally limited, the type of protection varies from country to country. The value of a trademark depends on the strength of the mark, whether a registration has been obtained, and on a variety of other factors. Similar to patents, trademarks are essentially limited by national borders. In the United States, trademark rights can be acquired either by actual use or by seeking a registration, whereas in many countries the first entity to register the mark may have superior rights to the first user. Copyrights, on the other hand, tend to transcend borders. A copyright created in, for instance, Hong Kong can be valid in New York without any need for registration. However, some countries restrict the right to sue for enforcement of the copyright or limit the damages which can be recovered in the absence of a registration. Further, because of the way that the statutory copy- right law developed in the United States, the date of creation may affect whether or not the work needs a copyright notice when first published, whether the life of the copy- right was divided into two segments and required a renewal application, and the extent to which licenses can be restricted. Additionally, a grant of exclusive rights in the United States must be in writing, although what constitutes a “writing” is lib- erally construed. In general, highly creative works may be given a broader copyright scope of protection than works that involve only a modest amount of creativity. Trade secrets have become increasingly valuable to many companies, not only as a tool for achieving a competitive advantage, but also as a source of licensing income. It has been reported that IBM derived about INTELLECTUAL PROPERTY TODAY JANUARY, 2003 21 two-thirds of its $1.7 billion licensing income in 2001 from licenses that involved trade secrets. A key element in protecting trade secrets is that the effort to maintain secrecy must rise to at least the level of “reasonable effort” under the circum- stances (e.g., marking material confiden- tial, providing physical barriers, providing reminders of secrecy, and conducting exit interviews of departing employees). The extent to which such efforts are in place can affect the value of the trade secrets. THE DUE DILIGENCE TEAM The object of the due diligence not only affects the scope of the study but also the constitution of the team assembled to con- duct the study. Due diligence is typically conducted by a team made up of manage- ment representatives, company research and development or other technical person- nel, attorneys (both inside and outside), accountants, actuaries, and appraisers. Each contributes to the overall evaluation of the company or other assets or venture being considered. The team is frequently lead by an experienced corporate manager or attorney. Attorneys with expertise in spe- cific areas of the law, such as intellectual property or international taxation, are engaged as needed. Members of the team need to be able to interact with other mem- bers and draw on their expertise as required. In general, overview discussions should include all team management members. Management’s technical representatives and counsel should handle the intellectual property discussions, particularly if the due diligence involves complex patent or trade secret issues with specialized training and experience and requirements. It may even be appropriate for an independent third party to be retained to perform all or certain portions of the technical due diligence, such as determining whether a patented biotech process can repeatably achieve the desired goals or in vivo efficacy. Inquiries of suppliers and customers should involve management or investment bankers, but contracts with third parties should be reviewed by counsel. Inspection of physical assets and facilities should be conducted by management and its techni- cal staff, investment bankers or accoun- tants, and where appropriate, counsel. Examination of intangible assets such as patents and trademarks should be con- ducted by counsel and, for valuation issues, accountants. Review of regulatory approvals and licenses should be con- ducted by management and counsel. Title searches, Uniform Commercial Code (“U.C.C.”) filings of security interests and other liens, Patent and Trademark Office (“PTO”) , and Copyright Office searches, should be conducted through counsel. Major contracts should be reviewed by counsel, although experts may be retained to examine certain types of agreements (e.g., government contracts counsel may be retained if government contracts are a key part of the assets or business). DUE DILIGENCE PROCEDURE – OBTAINING AND REVIEWING THE INFORMATION In the context of a corporate acquisition, basic information about the target company needs to be obtained at an early stage. A great deal of such information is publicly available and can be obtained indepen- dently through various on-line services and database sources. For instance, in the case of a pharmaceutical company, reference to what is referred to in the trade as the “Orange Book,” a Food and Drug Administration (“FDA”) publication, will identify a company’s pharmaceutical prod- ucts approved for marketing, the key patents which can be infringed by such marketing, and also certain competitive products, if any. Based on the business goals and objec- tives of the transaction, additional informa- tion is requested directly from the company. In practice, a separate request relating to intellectual property matters is typical, but this may be combined with requests for information about other aspects of the com- pany. It might also be appropriate to con- duct initial interviews with appropriate corporate officers, in-house intellectual property counsel, key inventors, engineers, artists, advertising executives, etc. In many cases, the individuals responsible for the company’s core technology are important; such individuals should be identified and the arrangements with them explored. For instance, do they have employment con- tracts?; have they assigned their rights to the company?; have they departed and joined potential competitors? In some countries, inventors can have a right to receive compensation when a patent is assigned or licensed. The key products, including detailed specifications, chemical formula, biological activity, pharmaceutical indications, manu- facturing processes, etc., should be identi- fied so that a determination can be made as to whether any existing third party patents or published patent applications cover these aspects of the company’s key prod- ucts. Any licenses covering an end product or its production, including any intermedi- ates used, should be obtained and reviewed. If any specific or unique materi- als are necessary to the production process, such as plasmids, constructs, or cell lines in the biotechnology arena, their source and any contractual arrangements involv- ing them must be examined. All supply agreements, research collaboration agree- ments, distribution agreements, and the like should be reviewed to make sure they are assignable and will survive the transac- tion, and also to determine whether they are dependent on third par