Step 8. Identify Warranties and Indemnities. Acquirers seek indemnification for infringement of intellectual assets in the hands of third parties. Contributors seek to limit financial exposure and to avoid the liability for the acquirer’s actions that the contributor cannot control. To the extent that the contributor warrants non-infringement of another’s intellectual assets as well as validity of his own intellectual assets, the acquirer may pay a correspondingly higher price. A contributor can expect to negotiate a lower price when the acquirer assumes exposure for infringement and there is a chance the intellectual property assets may not be valid or enforceable.
Non-Infringement. An acquirer should expect a contributor to warrant that the contributor has disclosed knowledge of all potential infringements. The acquirer should require the contributor to warrant that the contributor has disclosed all letters of inquiry, threatened litigation, pass litigation or pending litigation concerning infringement of another’s intellectual assets.
Validity. Generally the contributor will not warrant that a transferred intellectual asset is valid against all potential claims. An acquirer can require that the contributor warrant the disclosure of any information relevant to the validity of an intellectual property asset. In acquirer should require the contributor to warrant that it is not engaged in any inequitable contact in any administrative proceeding that would render an intellectual asset unenforceable.
Ownership. Generally in acquirer should require the contributor to warrant that the contributor is transferring all rights, title, and interest, free of liens and encumbrances in the intellectual assets. An acquirer should require the contributors to specifically identify any limitations on the transfer such assets. Acquirers should also require the contributors to assume liability for failure to transfer such assets.
Non-Competition. Because intellectual asset contributors hold intimate knowledge of trade secrets and other proprietary information an acquirer may seek to obtain a not-to-compete agreement from the contributor. Such covenants must be reasonable in time, geography, and subject matter in view of the circumstances.