Guest article
Proprietary technology and the business transaction
R&D investments, companies are required to give more serious
thought to protecting their proprietary technology in business
transactions. There are preparatory steps that can be taken prior
to any discussions or negotiations that can help minimize the
inherent risks.
Due Diligence
Before entering into any transaction involving proprietary technology, a company should perform a thorough due diligence of its own intellectual property (IP) and that of the proposed business partner. The purpose of due diligence is to test the underlying business and IP assumptions and assess how the IP reality corresponds with the rationale for the deal.
The first step is to analyze the state of the relevant industry and the target company. Identify their products and services, and prioritize their assets.
Next, identify the landscape of the corresponding IP and determine the scope of protection provided by the IP assets of your own company. If the target company can design around your IP, there is little reason for them to spend the money to obtain these rights.
Verify the 'exploitability' of your IP assets in the eyes of the other company and tighten up any gaps. Review any other business considerations, and file any needed patent applications, trademarks or other forms of IP as needed.
These steps will provide comfort in the representations, warranties and indemnities one would be willing to make as to the company's own IP. Only after these due diligence steps are completed should the target company be approached.
Provisional Patent Applications
These applications are not examined, automatically expire after one year and, unless converted to a regular utility application, are never disclosed to the public. Therefore, gaps in IP can be covered in provisional applications, and allowed to lapse unless needed.
This provides a hedge strategy against inadvertent disclosure, and is legally a constructive reduction to practice in the event of independent invention by a competitor.
Such provisional filing provides insurance against breach of a nondisclosure agreement, or a dispute over what was known to a party prior to commencing discussions.
Nondisclosure Agreements (NDAs)
Prior to any substantive business discussions, an NDA should be negotiated and executed. Read these types of agreements carefully, as they are binding contracts. Ignore the common misconception that these agreements are easily invalidated in court. Irrespective of whether they can be sustained, litigation is expensive, takes significant time and carries an emotional burden.
The NDA should contain a provision exempting from confidentiality any information known to your company prior to execution of the agreement. It is often common to add the provision that such exempted information must be evidenced by written documentation; hence, the filing of provisional patent applications should satisfy this criterion.
Risk and opportunity are two sides of the same coin and, although all business transactions have inherent risks, strategic planning can mitigate risks to acceptable levels.
Michel Morency is a partner with Foley & Lardner LLP and a member of the firm's Biotechnology & Pharmaceutical and Private Equity & Venture Capital Practice Groups, as well as the Life Sciences, Emerging Technologies, Food and Nanotechnology Industry Teams. He can be reached at 617.342.4080 or by e-mail at zzberapl@sbyrl.pbz.
James F Ewing is a senior counsel with Foley & Lardner LLP and a member of the firm's Biotechnology & Pharmaceutical Practice Group and the Life Sciences and Food Industry Teams. He can be reached at 617.342.4088 or by e-mail at wsrjvat@sbyrl.pbz.
