An important aspect of any intellectual property (“IP”) due diligence effort is to evaluate how the target company has managed its relationships with its personnel and whether infringement claims could possibly arise from those relationships. Requesting and reviewing the documents that memorialize the terms and conditions under which the target company retains consultants, vets prospective technologists, and collaborates with third parties to develop new technology is a crucial step when evaluating the legal risks posed by these relationships. Another equally important step is to interview the individuals to identify the work they have done for the target company. Significant issues can arise when personnel relationships are managed poorly. We will discuss additional IP and technologists issues in the coming weeks.
Consultants and Copyright Infringement Claims. Many technology companies retain third party consultants to assist with technical projects. Retaining consultants to undertake technical work can, however, result in copyright claims. The target company should be aware of the copyright work-for-hire rules before they retain consultants. Some are, some aren’t. If the target company has retained consultants to develop or assist with the development of a software product, but has not entered into a written agreement with those consultants that transfers the copyrights to the company, the consultants own the software. The target company owns a personal, limited, implied license, but has no ownership rights in the software whatsoever. This happens on an almost weekly basis, and it may be so extensive as to scuttle the deal you are considering.
Remember it is very important to clearly establish your expectations on what due diligence can accomplish and what risks are involved. Determine what constitutes a material risk you as the buyer or investor are simply not willing to take. Even after you’ve conducted the most thorough IP due diligence, you may never walk away with complete assurances of the target company’s IP assets and technologists. If you avoid stepping on a major land mine, then your IP due diligence has been successful.
Finkel Law Group, with offices in San Francisco and Walnut Creek, has assisted many technology company’s and investors conduct due diligence on the intellectual property assets of a target company in an acquisition or strategic investment. When you need intelligent, insightful, conscientious and cost-effective legal counsel to assist you with an intellectual property transaction or investment you may be contemplating, please contact us at (415) 252-9600, or info@finkellawgroup.com to speak with one of our attorneys about your matter.
