DealLawyers.com Blog

A recent Gibson Dunn memo provides an overview of the top tech sector due diligence issues in M&A transactions.  This excerpt addresses some of the IP ownership issues that may arise as the result of a target’s receipt of government or university funding:

Funding from government or university sources such as grants, or even the use of university facilities, can often come with strings attached, including ownership or license rights in favor of the funding source. Applicable statutes, grant terms, faculty employment agreements and university policies should
be carefully reviewed to confirm whether a university or government funding source has any consent or intellectual property rights in, or with respect to, the transfer or use of any of the target company’s intellectual property. Further, while during recent years, universities have become more supportive of
their professors launching companies, not all universities have updated their policies regarding the same.

As a result, an acquiror may need to require a target to obtain certain consents or releases from a government or university funding source as a closing condition to a transaction. Outside the U.S., government funding can create tail liabilities that need to be allocated between the acquiror and seller – for example, in Israel, exporting IP developed using in part funds from the Israeli Ministry of Innovation, Science and Technology for development outside of Israel could likely trigger a non-trivial payment.

In addition to issues relating to the ownership of intellectual property, the memo addresses open source software, cybersecurity & cyber insurance, data privacy & data use, employee stock options & 409A valuations, trade secret protection, and trade & anti-corruption compliance.

– John Jenkins