Conforming the Provisions to Reflect the Due Diligence and the Deal

• Author: Leah Brownlee
• Pages: 629-664

629

I. Introduction

Intellectual property is a deal driver. Whether the deal is a

license, asset purchase, or stock purchase, the intellectual prop-

erty held by a company is often the most valuable asset of that

company, and it is likely a key component to the future success

of the target company or business unit. In the context of a deal in

which intellectual property is acquired, several terms that dene

the scope and breadth of the intellectual property must be dened.

The terms needed will vary depending on the type of product the

intellectual property covers and how close the product is to the

commercial market. For instance, in the life sciences industry,

a patent may be licensed that would cover a future product that

has not yet been identied, or it may cover a specic compound

or device that has received approval for sale from the U.S. Food

and Drug Administration, or anywhere in between. The deni-

tions are used primarily within the conveyance section, in the

case of a license or asset purchase agreement, and within the rep-

resentations and warranties sections of all types of transaction

Chapter

Conforming the Provisions

to Reflect the Due

Diligence and the Deal

By Leah Brownlee*

16

* I would like to thank my daughter for all of her patience and understanding.

630 CHAPTER 16

documents. In the representations and warranties section, there

will most likely be several subsections that address intellectual

property specically, with the requirement that schedules of dis-

closures (disclosure schedules) be created to accompany and sup-

plement the text in these sections of the transaction document.

II. Denitions

Dened terms are used throughout the transaction document,

but dened terms specic to intellectual property have certain

key uses, such as the language of the license grant in a licens-

ing transaction or the listing of assets purchased in an asset pur-

chase transaction. This section discusses and gives examples of

dened terms specic to intellectual property (IP). In addition, for

the purposes of the examples in this chapter, the following terms

are used throughout as dened here.

Agreement means the transaction document in which the

provisions would be included, whether that be a license agree-

ment, asset or stock purchase agreement, or other type of convey-

ance document. Company means the transferor of the intellectual

property under the Agreement.

An exemplar of a license grant is shown here with certain

terms bolded. Each of these terms is dened in this Section II and

discussed in this chapter, and throughout this chapter, when used

in examples, each of the discussed terms specic to intellectual

property is bolded.

Example License Grant Language

Subject to the terms and conditions of this Agreement,

the Company hereby grants Licensor an [exclusive]

license under the Intellectual Property to: (a)make,

have made, develop, import, export, distribute, market,

promote, offer for sale, and sell Products; (b) prac-

tice any method, process, or procedure within the

Intellectual Property; and (c) otherwise exploit the

Definitions 631

Intellectual Technology, each within the Territory

for use within the Field.

Dened terms used here are:

• Field. The definition of field sets forth the commercial

area or field of use in which the intellectual property may

be made, used, or sold by the licensor of the technology.

Two examples of a specific definition of field are:

❍For a pharmaceutical drug product, “Field means

oncology.”

❍For a software product, Field means mobile computer

devices and/or communication devices, and the

process(es) employed to manufacture such devices.”

Generally, the term eld is used in the context of a license

agreement. In the context of an asset purchase or stock purchase

transaction, all elds of use will be transferred to the purchaser,

and thus the term may not be used in the related transaction

documents.

The information that is gathered during due diligence will

indicate what elds of use the product is being developed for, and

this knowledge will be useful for drafting the denition in the

event that some, but not all, elds of use of the technology are

transferred pursuant to the transaction documents.

• Territory. This term is also generally used in the context

of a licensing agreement. The term is defined to identify

the countries or areas (territories) in the world for which

rights to the technology at issue such as, rights to make,

use, sell, and/or import products and/or services covered

by the intellectual property—to the extent such rights

exist in those countries—are being transferred pursuant

to the Agreement. Two examples of a specific definition of

territory are:

❍“Territory means worldwide,” in a context where the

purchaser or licensor negotiates for rights in the tech-

nology that are not geographically limited.