Understand Your Rights. Solve Your Legal Problems
What IP issues should you consider when buying a company? How about when you are the one selling your company? What even is a strong patent portfolio? We speak with two experts who help to answer IP related queries.
What are important compliance issues when devising a patent portfolio?
Based on our experience the question of true ownership is the most important compliance issue when it comes to devising a patent portfolio. Clients are often not aware of the fact that in many jurisdictions, IP rights including patents may literally be transferred “on a beer mat”, or, in other words, outside the official register. Therefore, one should always bear in mind that the official register does not necessarily reflect current ownership status.
A typical scenario from the German perspective is that the registered patentee failed to comply with the requirements under the German Employee Invention Act (Arbeitnehmererfindergesetz). Unlike, for example in the US, where employers may simply request that all inventions by employees are assigned to the company, under the former German law up until 1 October 2009, the employer had to claim the invention explicitly within four months from being notified by the employee. Once this time limit had been missed, a transfer of rights was not effective and all rights to the invention remained with the employee. The former law thus required considerable organisational efforts imposing a heavy burden, especially on smaller and middle-sized companies. Although this problem was recognised by the German legislator and the new law is facilitated, it has to be considered that patents have a term of protection of 20 years and most of them are granted and thus enforceable only after five to ten years from application. Especially those patents filed before 2009 tend to relate to inventions which are absolutely key for a company’s business, while at the same time being particularly prone to the risk of not being owned by the company using them.
Apart from this specifically German phenomenon, there are various other reasons why the rights to patents may not lie with their registered owner, but in fact with a third party. This includes the absence of proper assignment clauses in contracts with management staff, all the more, as case law on fiduciary duties, for example imposed on CEOs, to transfer inventions to the company does not provide for much legal certainty. The same applies for subcontractors, research institutions and freelancers. Also, in many cases there is more than one inventor and assignments of all inventors involved must be obtained in order for the company to acquire all necessary rights.
How can disregarding such issues cause problems?
In a worst-case-scenario, such “skeletons in the closet” may impede a technology-driven company from enforcing an essential part of its patent portfolio.
If the true owner of the key IP rights is not with the company, for example, because an inventor employee has switched firms, such rights may, either directly or indirectly fall into the hands of competitors, who might then prevent the company and/or its clients from using the patented technology literally overnight by means of a preliminary injunction. Practically speaking, this means that a product using the patented technology may not be shipped anymore and that remaining stock has to be modified or destroyed. Products that have already been supplied to commercial customers may have to be recalled. This is particularly harmful, if patents are concerned which were generated within the company and thus tailored specifically for the company’s core products.
Besides the aspect of true ownership, the question of encumbrances in terms of licences and cross licenses is relevant. For example, if a patent portfolio is acquired as part of a business model involving patent enforcement, the whole business model may be ruined, if the further existence of licenses to third parties, in particular directly or indirectly to those who are possible targets of the enforcement business model, has not been thoroughly considered.
What common problems occur regarding patents during M&A transactions? What should clients be aware of?
From the purchaser’s perspective, there is always the risk that the IP portfolio or parts thereof are not owned by the target company. Unlike in other jurisdictions there is no bona fide acquisition of German IP rights, in particular no such acquisition clearing encumbrances such as licenses, pledges or security interests. Given that the register is no proof of legal ownership or freedom from encumbrances and that the seller may often not be able to provide complete information, profound strategies for risk management aligned with the quality and/or lack of information are required. Remaining risks may be covered by the seller’s warranties and indemnities.
Sellers have to be prepared for the fact that the true ownership of the entire IP portfolio will be under increased scrutiny. Any uncertainties in this respect may considerably reduce the value of the IP portfolio and thus the purchase price. In technology driven areas where IP rights constitute the target’s main asset, which is, for example, often the case with respect to software solutions developed by FinTech companies, any shortcomings of information provided in the data room or in expert calls may become a showstopper with an investor possibly backing out of a project should the risks prove to be too high.
What three things do you think clients should consider when devising a strong patent portfolio?
How do you expect to see the world of IP in the upcoming years?
From a transaction perspective, especially for technology driven hidden champions in Europe, we expect high interest from Asian, in particular Chinese, investors. We also anticipate a further increase of the interest of larger companies to invest in seed and early stage start-ups, for instance in the FinTech sector. Since both are trending in technology and as related IP rights are often the core asset, we expect to see increased attention being paid to possible risks in IP portfolios and their mitigation in M&A transactions. This goes hand in hand with the increasing focus on other compliance topics such as data security and financial regulatory frameworks. Apart from attracting investors German companies may, on the other hand, take an interest in developing strategies to evade hostile takeovers, which is also an important consideration to be taken into account when building an IP portfolio.
Dr Katrin Winkelmann
Dr Sandra Müller
Dr Katrin Winkelmann is a Patent Attorney and Partner at German IP law firm Eisenführ Speiser. Besides patent portfolio development, opposition proceedings before the GPTO and EPO as well as litigation and nullity proceedings before the German Courts, a particular focus of Katrin’s practice is comprehensive IP consulting for technology driven mid-cap companies. With her engineering background and experience in management consulting Katrin’s IP expert knowledge and business perspective complement one another, making her a specialist in strategic IP advice, such as patent portfolio analysis, IP due diligence and IP transactions.
Dr Sandra Müller is an Attorney-at-Law at Eisenführ Speiser. In her role as an IP Litigator Sandra has represented clients from the luxury brand and consumer goods industry in various infringement proceedings before the German courts and in cancellation and opposition proceedings before the GPTO, the EUIPO and the ECJ. With several years of experience in one of Germany’s major commercial law firms Sandra further advises on transactions relating to intellectual property rights.
Eisenführ Speiser is one of Germany’s leading IP law firms with a particular emphasis on mid-cap companies with a strong IP focus. Since its foundation in 1966 Eisenführ Speiser has been advising clients in all matters related to intellectual property rights. With offices in Bremen, Munich, Berlin and Hamburg, a staff numbering over 200, including more than 50 patent attorneys and attorneys-at-law, assists clients in filing applications for patents, utility models, trade marks and registered designs and defending and enforcing those rights as well as in any other intellectual property related matters such as portfolio and freedom-to-operate analyses, licensing and IP due diligence.
Leagold Mining Corporation (TSX:LMC; OTCQX:LMCNF) ("Leagold" or the "Company") announced that on it completed its acquisition of Brio Gold Inc. (TSX:BRIO) ("Brio") and has acquired all of the issued and outstanding shares of Brio (the "Brio Shares") pursuant to the terms of an Arrangement Agreement entered into between Leagold and Brio on 15 February 2018 (the "Arrangement").
Pursuant to the Arrangement, Leagold acquired 117,556,100 Brio Shares, representing 100% of the issued and outstanding Brio Shares by way of a court approved plan of arrangement carried out under the provisions of section 182 of the Business Corporations Act (Ontario).
Prior to the Arrangement, Leagold owned no Brio Shares, and accordingly, the acquisition represents an increase in Leagold's ownership from nil to 100% of the issued and outstanding Brio Shares following completion of the Arrangement.
Paksoy advises Zorlu Group on the financing of Osmangazi Elektrik Dağıtım
Osmangazi Elektrik Dağıtım AŞ ("OEDAŞ"), an electric distribution company operating in five cities (namely, Eskişehir, Afyon, Uşak, Kütahya and Bilecik) and a wholly owned subsidiary of Zorlu Enerji, has signed project finance agreements with the lenders, European Bank for Reconstruction and Development ("EBRD"), International Finance Corporation ("IFC"), Nederlandse Financierings Maatschappij Voor Ontwikkelingslanden N.V. ("FMO") and certain Turkish banks for an amount of TL equivalent of USD 330 million. The loan will be utilized to finance the capital expenditures of OEDAŞ for the third implementation announced by the Energy Market Regulatory Authority of Turkey in its decision dated 18 November 2015 and numbered 5875-2, which is applicable between 1 January 2016 and 31 December 2020.
Paksoy confirmed that M. Togan Turan (Partner), Soner Dağlı (Associate) and Beril Paksoy (Associate) advised the Zorlu group on this transaction.
How will we ensure that a delicate balance is achieved when regulating cryptocurrencies? Dr Christian Ellul, is a lawyer who specialises in blockchain and crypto advisory and according to him: “I am an advocate for regulation, insofar as I believe this is the only way we will ensure cryptocurrencies become universally accepted, useable and beneficial to all. We must however ensure there is no over-regulation or any draconian legislative measures that will kill the very nature of its decentralisation.”
The European Parliament stated that Cryptocurrencies will not challenge the economic power of central banks; what is your opinion on this?
Our belief is that the main FIAT currencies will still be the principal medium of exchange for many years to come due to their widespread acceptability and legal recognition. The current volatility of cryptocurrencies makes them impractical substitutes for the more stable FIAT currencies.
In the medium term, we see cryptocurrencies increasingly being used in less developed or more unstable countries where currency volatility, as well as uncertainty, already exist.
In the future, however, with adoption, acceptability and especially a less volatile cryptoenvironment, cryptocurrencies will act as a check on central banks. The moment people will lose faith in a FIAT currency, usually due to the questionable actions of central banks, they can fall back onto these decentralised currencies, which by their very nature, cannot be controlled or influenced by a central authority.
Tax and cryptocurrencies: how does it work?
Currently Malta, like many other countries, does not have any specific tax laws, regulations ,rules or guidelines in relation to the tax treatment of cryptocurrencies and therefore the general principles of taxation would need to be applied. This is not easy since generally the biggest problem in understanding the manner in which cryptocurrencies are to be taxed falls to be a matter of classification. Are cryptocurrencies to be seen as a currency or legal tender or as a separate asset class? Are they commodities or a payment method, amongst other things? Although it is generally understood that cryptocurrencies are currently seen in Malta as an asset class, unfortunately we believe that a one size fits all approach does not seem to be a long-term solution since there are many types of cryptocurrencies that possess different characteristics. For example, where Litecoin (LTC) can today be seen as more of a mode of payment, Bitcoin (BTC) can today be seen as more akin to a holder of value, i.e. an asset. The same lack of clarity exists currently in relation to VAT. The EU VAT Directive, as implemented into Member States’ domestic VAT laws including Malta, does not contain any provisions on cryptocurrencies, which means that today there is uncertainty as to how virtual currency exchange transactions should be treated for VAT purposes. We believe we will see the passing of more regulations and possibly specific tax rules on cryptocurrencies as time goes by, both domestically and at an EU level. In fact, it is understood that guidelines should shortly be published by the tax authorities in Malta in relation to the tax treatment of cryptocurrencies.
What do you think tax lawyers need to be aware about when concerning the rise of crypto?
I believe that an attempt at classifying all cryptocurrencies in the same manner and hence taxing them similarly might not be the best way forward. As explained above, there are numerous types of cryptocurrencies and crypto assets and many of them have different features, including for example tokens issued on different blockchains which can range from utility tokens to security tokens. I believe more monitoring and analysis from an EU or international point of view whether in the form of specially set up committees or task forces will help ensure a uniform adoption of certain minimum standards within the European Union or internationally. Similarly, recently in February 2018, representatives from the European Commission and 35-member countries of the Financial Action Task Force (FATF) have agreed to revise its criteria in relation to virtual currencies. This included AML recommendations aimed at improved understanding of actual risks posed by misuse of cryptocurrencies. I believe we will be seeing more and more of such initiatives all aimed at ensuring the correct mainstream implementation and use of cryptocurrencies. Tax lawyers should therefore keep themselves busy reading up on legislative developments in relation to what we believe to be a relatively new and very dynamic market .
CHRISTIAN ELLUL
Director
Dr Christian Ellul, is a lawyer based in Malta and specialized in international tax. As a director of E&S Group, the first corporate and tax firm to tokenise its services, he has together with the rest of his professional colleagues, focused in the last year primarily on blockchain and crypto advisory work.
IK Investment Partners (“IK”) announced that the IK VIII Fund has reached an agreement to acquire Klingel medical metal GmbH (“KLINGEL” or “the Company”), a leading manufacturer of high-precision and complex metal components mainly for a range of medical technology applications, from Halder.
KLINGEL was established in 1986 and has become a leading independent contract manufacturer of high-precision, hard-to-machine parts made from titanium and high-grade types of stainless steel. The Company operates a vertically integrated business model with in-house capabilities spanning the entire production value chain from design to manufacture to final packaging with a strategic focus on medical technology.
KLINGEL represents the IK VIII Fund’s second mid cap acquisition in the past month, and the 11th acquisition announced by the Fund. Financial terms of the transaction are not disclosed.
Parties involved in this transaction:
IK Investment Partners: Anders Petersson, Mirko Jablonsky, Alexander Dokters, Adrian Tanski, Daniel-Vito Günther
Buyer financial adviser: Quarton International (Lars Veit, Rolf Holtmann)
Buyer strategic due diligence: Alvarez & Marsal (Georg Hochleitner)
Buyer financial due diligence: Ebner Stolz (Claus Bähre)
Buyer legal adviser: Renzenbrink & Partner (Ulf Renzenbrink)
Halder: Michael Wahl, Christian Muschalik
Seller financial adviser: William Blair (Philipp Mohr, Moritz Rottwinkel)
Seller legal adviser: Graf von Westfalen (Lutz Zimmer, Ernst Lindl)
Cleeng, the leader in video e-commerce solutions for broadcasters, announces a Series B funding round of €5 Million to drive product development and growth in key markets. With the new funding, Cleeng will up its sales and marketing efforts, broaden its partner network and further invest in research and development. The funding round is led by Dutch venture capitalist firm Walvis, joined by current investors C4 Ventures. Walvis, founded by the J.A. Fentener van Vlissingen family, helps Dutch technology companies scale internationally.
The additional funding strengthens Cleeng’s leading position in the Direct-to-Consumer video industry. Global broadcaster networks including Foxtel, Sinclair Broadcast Group, Sky News, and media brands like Feld Entertainment, Cyberobics/McFit use the company’s flexible and scalable solutions to sell and secure their premium video content. With the advanced analytic capabilities, broadcasters have a 360˚ view of the end-user journey, along with powerful analytics that enables more precise data-driven business decisions.
Interview with Magnus Svensson at Eyevinn Technology
Please tell me about your involvement in the deal?
I performed the technical due diligence for the Walvis funding of Cleeng. I have a long background within the Media industry and have been involved in several media acquisitions during the last years. My involvement during these has varied from driving the technical due diligence to providing technical advice. Together with the rest of my colleagues at Eyevinn Technology we cover all competences needed for such assignments.
I performed an in-depth assessment about the quality and functionality of the Cleeng software stack. Areas addressed was the technical architecture, product/solution robustness, scalability, uniqueness as well as identifying weaker spots and suggested improvements. Technical roadmap, strength of the development team and development methodology, was also assessed.
You state that when doing acquisitions or investments it’s important to get an independent view of the solution, architecture and organisation efficiency; how do you achieve this? Can you share your step by step process?
At Eyevinn Technology we follow a well-developed process when performing a technical due diligence. In short, we use the following approach:
The outcome will result in a report, including a one-page executive summary, where we have assessed the following areas:
The workshop and report are not only valuable to the investment company, it will also provide valuable feedback to the target company.
What common challenges can crop up when performing due diligence, and how do you go about solving this?
Common challenges when performing due diligence is usually availability of required information and access to key personnel at the company. A technical due diligence is time-consuming for all involved parties and the key is to make this as efficient as possible. To solve this, we always follow a predefined agenda that is shared in advance, and I also send all topics and questions in advance of the on-site workshop. This allows for all involved to prepare and utilize the time spent in the best way.
Frontier Car Group, a Berlin start-up that has built a used car marketplace targeted specifically at countries outside of Western Europe and North America, raised $58 million in funding: $41 million in equity and $17 million in debt funding. The funding was led by Balderton Capital and TPG Growth (companies which worked with Frontier previously), alongside Fraser McCombs Capital and Autotech Ventures.
The company wishes to expand their business in Africa, Latin America and Asia; they have sold 50,000 vehicles since launching at the end of 2016 and are on track to do $200 million in annualised revenues per year.
Frontier is not disclosing its valuation, but according to TechCrunch: ‘a source close to the company said the demand to participate in this round was high and led to two unsolicited Series C term sheets — each for around $100 million — and both on a pre-money valuation of over $200 million’.
In May last year, Cars45, raised a $5 million Series A round from the Frontier Cars Group, a holding company whose backers include Balderton Capital, EchoVC, TPG Growth, and NEA.
Interview with Paul Dailey, Partner at Citrin Cooperman
Please tell me about your involvement in the deal?
We were involved from a tax perspective. We advised regarding structuring and potential withholding taxes on dividends.
Was this a good deal for all involved, and why?
Yes, it clearly was. FCG was able to obtain significant financing from the new partner so as to continue its significant growth model. From an economic perspective, it will enable FCG to expand business operations in additional countries. The final agreed upon tax structure was deemed tax efficient for both parties.
What challenges arose? How did you navigate them?
From a tax perspective, a structuring challenge was initially encountered. We worked closely with FCG management and the investor’s management and tax counsel. At the end, it was resolved to the mutual satisfaction of both parties.
AMT Labs Spa., NEWCO dedicated to the study, development and production of innovative materials for the tobacco world, is a company founded by Bio-on Spa and capitalised with 10 million euros.
Bio-on Spa is active in the sector of bio plastic of 100% high quality, organic and biodegradable.
All the PHA bioplastics (polyhydroxyalkanoates) developed by Bio-on Spa, are made from renewable plant sources with no competition with food supply chains; they can substitute traditional polymers today obtained by petrolchemical processes using hydrocarbons as raw materials.
GIMA TT Spa has acquired a 20% stake in AMT Labs SpA with an investment of 2.2 million euros.
GIMA TT Spa is active in the design and assembly of automatic machines on an electronic basis for the packaging of products derived from tobacco and in particular those of new generation at reduced risk. Gima TT Spa is controlled by IMA Spa
In this transaction, Poggi & Associati assisted GIMA TT through a team coordinated by the Partner Emanuele Gnugnoli. Bio-on was assisted by Partner Vittorio Catelli of the Corona Catelli Law Firm.
By Aaron Simpson, James Henderson and Olivia Lee, Hunton Andrews Kurth
The General Data Protection Regulation (GDPR) has now been in force for two months, and anyone who expected the dust to settle before summer will be sorely disappointed. In the months leading up to the GDPR’s implementation, 42-46% of businesses surveyed by the Ponemon Institute and SAS Institute anticipated that they would be fully compliant by the 25th May deadline. This was optimistic - a further survey conducted by TrustArc one month following 25th May found that only 20% of businesses had achieved full compliance, by their own estimations.
Some companies now seem to be coming to terms with more realistic compliance projections. According to TrustArc, 76% of businesses now have their sights set on the end of 2018 as a deadline for full compliance. If there is to be reasonable hope of fulfilling these expectations, we will likely need further guidance from EU and national regulators to illuminate some of the murkier corners of the GDPR that remain pertaining to the extraterritorial scope of the law, data transfers and issues related to dropping cookies in the website context.
Even the most basic question of applicability of the GDPR under Article 3 can prove troublesome, and many organizations, especially those non-European companies operating websites accessible from the EU, are still unsure as to whether their compliance is expected. A literal reading of the GDPR, coupled with an orthodox approach, could potentially result in the vast majority of the world’s online businesses falling within scope. But, from a pragmatic perspective, do we expect regulators to require compliance from companies simply because their websites happen to be accessible to individuals in the EU? Some businesses clearly feel as though there is at least a risk of this, and have taken the extreme approach of blocking access entirely from devices located in the EU. A more pragmatic interpretation would require that there be some kind of intention on the part of the organization in question to target those in the EU – both through the offering of goods or services and with regards to “monitoring” – before a website could be considered to fall within scope.
A related concern pertains to the same extraterritorial application of the law. Now that businesses that are not established in the EU can be subject directly to the GDPR as a result of their processing of personal data in the EU, how are data transfers to be considered? In these circumstances, has an actual “transfer” occurred if there is no controller entity established in the EU that can be considered to have made such a transfer? If such data collection is considered a transfer of personal data, non-EU businesses that are subject to the GDPR face practical hurdles to compliance, and questions regarding the relevance of data transfer mechanisms in the context of a business whose data processing is directly subject to the GDPR.
In relation to cookies, the myriad of divergent responses to the heightened consent requirements that now apply under the e-Privacy Directive will not have escaped notice. Some organizations have seemingly turned a blind eye, producing no cookie consent mechanism on their website, while others have opted to stick with the pre-25th May status quo, using an informative cookie banner but assuming consent rather than requiring a specific opt-in. Others still have taken a more conservative approach, going so far as describing every cookie being dropped on their website and obtaining specific opt-in consent.
Vendor management has proven to be another challenging area of compliance. There is some predictability to this – these issues require a consensus between parties as to controllership, and we are seeing many organizations having to push back against parties characterizing themselves as a data controller or a processor, when these characterizations do not correspond with the way in which they are using the personal data in question. It has proven particularly difficult to obtain efficient execution of Article 28 agreements, and we would expect many such agreements to require signature for the foreseeable future.
There has also been inconsistency in the practical implementation of the GDPR across Member States. For instance, some Member States’ regulators have already produced their own lists of factors that trigger a data protection impact assessment (DPIA), but variable terminology and even inconsistent criteria is likely to leave those operating in multiple jurisdictions unsure of whether a DPIA is necessary in relation to their processing. Poland’s Data Protection Authority, for example, has included international data transfers outside the European Union on their list of DPIA criteria, despite the fact that this was removed from the final version of the Article 29 Working Party’s guidance on DPIAs under the GDPR.
And keeping supervisory authorities onside should be a priority given the potential consequences of non-compliance. The Information Commissioner’s Office in the UK has already made something of an example of Facebook, announcing this month that it intends to fine the company £500,000 for its part in the Cambridge Analytica scandal, which is the maximum fine available under the old UK Data Protection Act which was applicable to this alleged behavior. The European Data Protection Board (formerly the Article 29 Working Party) has been equally unsympathetic with US firm ICANN in its attempts to extract personal data from German domain registrar EPAG.
It is still too early to predict how severe supervisory authorities will be in their enforcement, particularly whether or not they will take pity on companies still struggling to find their feet in this new legal landscape, but the fact that the ICO intends to fine Facebook the maximum amount possible under the old regime sends a signal that regulators will be willing to flex their significantly expanded muscles given the opportunity and incentive.
It will not only be regulators causing concern for businesses - data subjects also have been quick to make use of their rights. Some companies have reported receiving as many requests to exercise data subject rights in two weeks as they previously received in a year, no doubt partially attributable to the mainstream media coverage that the GDPR received compared to preceding legislation.
We would hope to see some guidance on these topics in the coming months. Given that the e-Privacy Regulation remains in draft form, it will likely be some time before there is anything definitive on the cookie front, and it may be enforcement actions from which we learn the most. What is clear is that the journey to compliance did not end on 25th May, and if we are being realistic, it is likely that the end is not even yet in sight.
Aaron P. Simpson
Partner
asimpson@HuntonAK.com
London
+44 (0) 20 7220 5612
New York
+1 212 309 1126
Aaron Simpson is the Managing Partner of Hunton Andrews Kurth’s London office and advises clients on a broad range of complex privacy, data protection and cybersecurity matters, including international and US federal and state privacy and data security requirements. As a leader on the firm’s privacy team, Aaron’s work ranges from advising clients on large-scale cybersecurity incidents to the development of cross-border data transfer solutions, compliance with existing and emerging data protection requirements in Europe, and negotiating data-driven commercial agreements. James Henderson and Olivia Lee are associates in the Hunton Andrews Kurth global technology, outsourcing and privacy team.
Exterro® Inc., the preferred provider of software specifically designed for in-house legal and IT teams at Global 2000 and AmLaw 200 organisations, announced a strategic investment from Leeds Equity Partners, a sector focused private equity firm with a two-decade history of investing in the knowledge industries. The investment will enable Exterro to accelerate development of its market-leading orchestrated e-discovery solution and continue to strengthen the resources required to deliver world-class support to its customers.
Leeds Equity is the leading private equity firm with an exclusive focus on investing in the Knowledge Industries, a sector which includes information services, education and training, and software. The firm’s investment professionals dedicate significant time and resources to each portfolio company, working closely with senior management to execute on strategy, drive innovation, and invest in growth, all with the goal of better serving customers and creating long-term business value.
Leeds Equity’s experience investing in the legal sector includes its investment in BARBRI, which is one of the largest providers of practical legal education to law students and attorneys throughout their careers. At the core of BARBRI is its bar review offering, which has helped more than 1.3 million lawyers around the world pass a US bar exam.
