Copyright Due Diligence

AuthorEdward Klaris
Pages143-224
143
I. Introduction
Effective due diligence will enable you to clearly determine the
target’s intellectual property (IP) landscape. A target’s copyrights
constitute one of its most valuable assets. Carrying out careful
and complete IP due diligence is crucial to permit the acquiring
party to benet from the immense value of the target’s IP. The
goal of this chapter is to identify the things counsel should ask
for, do, and pay attention to in the process of undertaking IP due
diligence for copyrights.
Section II begins by outlining the materials needed to under-
take due diligence properly on a company’s copyrights. It provides
a helpful list of copyrighted assets that counsel should ask for,
as well as material assets that are not protected by copyright
but are necessary to achieve comprehensive due diligence. This
section further sets out the questions that counsel should ask to
Chapter
Copyright Due Diligence
By Edward Klaris*
5
*I would like to thank Cindy Hong, Luke Budiardjo, and Emily Borich for their
remarkable, diligent, and intelligent contributions to the copyright, trademark, and
technology chapters of this book. In particular, Cindy Hong led the writing and re-
searching team, staying on schedule, and drafting and redrafting where appropriate,
all while holding down a rigorous federal clerkship. I am forever grateful to Cindy,
Luke, and Emily for their contributions.
144 CHAPTER 5
understand how the target has been monitoring, protecting, and
(where necessary) defending its IP in disputes.
Sections III and IV go through some fundamental concepts of
copyright law, namely, ownership (who owns the copyright in an
asset) and validity (which assets are copyrightable).
Identifying copyrightable assets and identifying their ownership
and validity are only the rst steps in the due diligence exercise.
Understanding exactly what rights the Copyright Act confers on the
target is crucial as well. Section V lists and explains the ve funda-
mental exclusive rights that are held by a copyright owner under
§ 106 of the Copyright Act (reproduction, preparation of derivative
works, distribution, performance, and display). These rights are all
qualied by statutory limitations. The most signicant of these,
“fair use,” is analyzed in greater detail at the end of Section V.
Section VI discusses the formalities involved in registering a
copyright. It traces the development of the “publication” doctrine,
explains the different treatment accorded to works published
before or after 1978, and describes the registration process for a
copyrighted asset.
If identifying copyrighted assets is Act I of the due diligence
process, Act II is monitoring the exploitation of such assets. This
can be done by requesting a freedom-to-operate opinion and moni-
toring Internet dissemination, both discussed in greater detail in
Section VII.
Sometimes close monitoring is not enough. A target may have
had to resort to litigation to protect its assets. A list of all previ-
ous disputes, whether resolved via settlement or litigated in the
courtroom, should be obtained from the target. To help you better
appreciate the nature of such disputes, Section VIII sets out in
detail the essential elements of a cause of action for copyright
infringement and the defenses that may be available. This section
is not only helpful in understanding the target’s previous disputes
but also can serve as a roadmap for future enforcement actions
that may have to be brought to protected acquired IP assets.
Finally, although this book is aimed at due diligence carried
out in the United States, comprehensive due diligencing requires
Due Diligence Materials 145
an understanding of how the target’s IP is protected abroad. Thus,
Section IX outlines international copyright treaties between the
United States and other nations. It outlines the key features of
and the differences between the Berne and Rome Conventions
and the TRIPs agreement. Choice-of-law issues—the rules that
determine which country’s laws apply to a dispute (in this case,
IP disputes)—are also explained in Section IX.
II. Due Diligence Materials
This section outlines the materials needed to properly under-
take due diligence on a company’s copyrights. As a preliminary
matter, any due diligence should be done in partnership with the
seller’s counsel. Before launching into the due diligence process, a
plan should be made that takes into consideration various factors
of the transaction, including the structure of the transaction, the
target company’s industry and the geographic scope of its opera-
tion, and the materiality of copyrights to the value of the company.
Counsel should be aware of whether the transaction is strategic
or a purchase by a private equity buyer. Different buyers may
have different goals for the transaction. Consider the nature of
the target’s business. Film production companies and publishers
may have different concerns when it comes to copyright infringe-
ment and licensing. In addition, counsel should note any process
constraints, such as an expedited transaction timeline, and any
budget constraints. This section supplies a glossary of terms used
and materials that should be collected for due diligence purposes.
A. Transaction Structure
The rst step in initiating a due diligence plan for any transac-
tion is to identify the type of structure. Mergers typically fall into
three categories:
Asset purchase: An acquisitional transaction in which
one company purchases all the assets of another company.
This type of transaction is more suitable for smaller deals.

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