Lessons Learned on How to Structure IP and Technology Acquisitions From L2 Counsel Webinar Hosted by Louis Lehot

Louis Lehot

As we emerge from a global pandemic, it has never been more important to be thoughtful as a buyer or seller of intellectual property and technology. Silicon Valley lawyer Louis Lehot, the founder of L2 Counsel, P.C., hosted a webinar on Tuesday, June 23, 2020, featuring panelists including Natasha Allen, founder of Allen & Hatcher LLP, Adam Dolinko, EVP of NextJuris and Patrick Stroth, CEO of Rubicon Insurance Services LLC.

Mr. Lehot shares key takeaways from the webinar:

Transaction structures

While many acquisitions are structured as whole entity transactions, or by forward- or reverse-triangular merger, technology and people can also be structured as asset purchases and recruitments. Buyers will want to leave behind potential liabilities and be smart about not taking on portfolios that could create havoc.

Sometimes, the buyer will require ongoing or transition services from the seller. The buyer may need to negotiate for a transition services agreement and may also want to recruit and retain talent to monetize the IP and technology post-closing.

Due Diligence

Approaches differ according to deal structure and timing. Sometimes, there is very little time, which argues for structuring via license or asset purchase. Other times, the buyer can conduct due diligence, and if including software, will commission a Black Duck scan of the code.

Contract issues

A definitive agreement for the purchase and sale of IP and technology will likely include representations, warranties and an indemnity. Buyers will be looking to ensure they receive a representation that the IP is sufficient to operate the underlying business, along with other IP reps and warranties on a broad array of topics.

“Bigtech” companies will typically argue that their price reflects full value and requires bulletproof coverage, and sellers will look to get a clean exit.

Red flag issues

The panelists did a tour of red flag issues relating to IP ownership, and about failing to sign agreements that contain assignment of invention or work for hire clauses. While error rectification is possible, it often comes at a price, as the signatory can claim a ransom. Joint ownership can also be a red flag.

Open-sourcing can also be a huge problem. While Black Duck scans can identify issues and pinpoint how to remediate them, they can be expensive and time-consuming, particularly in smaller deals that depend on speed.

Summing it up

Louis Lehot concludes that as we face the second half of 2020 and the “new normal” of remote deals, anticipating issues before they arise can only be done by experts. Transactional insurance can help sellers get cleaner exits, and products are now available in the lower middle market. Seek practical solutions while keeping the big picture in mind.

Louis Lehot has also recently started his video blog series #askasiliconvalleylawyer to share insights from industry leaders.

CONTACT: Kate Mamyko-Golomb, law clerk at L2 Counsel, P.C.

Source: L2 Counsel

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