Disaster or Opportunity? Intellectual Property Considerations at a Critical Juncture

01 October 2008 Publication
Authors: Pavan K. Agarwal William T. Ellis David G. Luettgen

Legal News Alert: Intellectual Property

The current financial crisis calls for leaders across industries to exert steps to protect the value of their tangible and intangible assets, including their intellectual property (IP). Below are immediate topics to evaluate as you start the process:

  • Re-evaluate the market dynamics:

    • How will your market morph in the face of this unprecedented financial crisis?
    • Will product lines change or be pared down?
    • Can you invent into that new market space and patent it?
    • Can you create new product synergies and patent the combinations and connections?
  • Re-evaluate your product/service portfolio and customer relationships:

    • Has the financial downturn caused any of your product lines or key customers to become vulnerable to competitors?
    • Can you ramp up customer relationships?
    • Are there new ways to combine product packages and services to counter the vulnerability? Can you patent those product packages?
  • Can you buy a distressed competitor’s product line?
  • Is a competitor with important patents collapsed or close to bankruptcy? Would the competitor be willing to sell its patent portfolio and take a license back?
  • Is there a competitor in distress that may be looking for a white-knight acquirer? Be careful to look under the hood at the IP:

    • If software is involved, check for open source obligations
    • Check IP ownership issues — particularly affiliations of inventors of key patents — after university affiliation
    • Check for dominant third-party patents controlling the product lines
    • Check non-competes of key employees
    • Check for key supplier problems
    • Check for threats of patent enforcement by third parties
  • Have you licensed out your patents? Check what clauses control in bankruptcy. Can a large competitor acquire these assets out of bankruptcy?
  • Can you take preemptive action such as buying back the license or terminating the license at will or for cause?
  • Are you litigating an IP issue where the other side is in financial distress? Would the offer of an immediate cash settlement with the other side be welcome?
  • Re-evaluate your supplier relationships:

    • Are one or more of your key suppliers in distress?
    • Are there force majeure clauses in the agreement? What happens if they are invoked?
    • Can you preempt potential problems by setting up alternative sources or purchasing the supplier?
  • For startups — have all key employees and principals signed IP assignment and non-compete agreements? Can you wrap those up now, before the financial distress increases?
  • Have you licensed-in patents or other IP with a fixed royalty per product sale? If your product pricing will be decreasing to the point at which the royalty is a substantial portion of the decreased price, renegotiate or terminate the license.
  • Has the valuation of your IP changed up or down in the face of this crisis? Your valuation reporting under Section 409 of the Sarbanes-Oxley Act may need to be reviewed and revised.
  • Are you in a joint relationship with a company in distress? Can you make an offer to acquire all the distressed company’s IP rights outright? Is this the opportunity to purchase further complementary rights from the distressed company?
  • If you are considering the sale of a division or subsidiary of your organization, evaluate the IP to ensure that you do not lose product and service freedom. 

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues.

If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or any of the following individuals:

Pavan K. Agarwal
Washington, D.C.
202.945.6162
pagarwal@foley.com

William T. (Bill) Ellis
Washington, D.C.
202.672.5485
wellis@foley.com

David G. (Dave) Luettgen
Milwaukee, Wisconsin
414.297.5769
dluettgen@foley.com