Thursday 4 December 2014
IP Issues in Mergers and Acquisitions: Any Recent Examples of Due Diligence Failures Involving IP?
Corporate Counsel has published a pair of informative articles concerning due diligence and intellectual property. The first article is titled, “Identifying IP Risks in M&A and Tech Joint Ventures: Beyond the Data Room”, by Anne Cappella, Charan Sandhu and Brian Chang of Weil, Gotshal and Magnes. The second article is titled, “The Financial Impact of IP Issues in M&A,” by Steve Ball and Jon Winter of St. Onge Steward Johnston & Reens. Both articles provide useful advice designed to help counsel avoid missing intellectual property issues during due diligence. The overarching message is that corporate counsel should include intellectual property specialists in any due diligence of a potential target. Both articles raise specific points that should be considered such as: proactively examining a target’s competitors to ascertain whether patent trolls have litigated against the target’s competitors to determine if your target is next; considering potential trade secret misappropriation actions by competitors of the target based on new hires by the target; ensuring that third parties who have worked with the target have not improperly claimed intellectual property possibly owned by the target; having clear title to intellectual property; and properly recording title. The second article provides a couple of examples where intellectual property counsel were not consulted or there were intellectual property issues missed in the due diligence. One problem involved Rolls Royce and BMW:
[I]n 1998 the Volkswagen AG Corporation purchased the automobile assets of the bankrupt Rolls-Royce Motor Cars Limited for $790 million, with the value of the physical assets estimated at $250 million. Volkswagen was unaware that Rolls-Royce’s trademark rights were subject to a nontransferrable license from Rolls-Royce Aircraft. Volkswagen purchased the plant, the machinery and the automobile designs from Rolls-Royce, but only learned after the deal that the purchased assets did not include the Rolls-Royce® trademark. So while Volkswagen was able to build the car, it could not brand it with the famous trademark. BMW then acquired the trademark rights for $65 million from the bankrupt Rolls-Royce Aircraft and forced Volkswagen to concede the brand, resulting in a huge windfall for BMW.
The most recent example included Apple’s acquisition of Beats Electronics:
Apple Inc. agreed to acquire Beats Electronics for $3 billion. In doing so, Apple purchased an infringement suit by Bose Corporation, which owns a number of patents directed to noise-cancelling headphones. After the deal was announced, Bose filed infringement suits in district court as well as at the International Trade Commission seeking to ban imports of the Beats headphones into the U.S.I have to imagine that Apple’s counsel knew they were likely to be sued by Bose Corporation. Are there any more recent public examples of IP failures in the due diligence before merger or acquisition with a target company?