It goes almost without saying -- but not quite. In an age when even the manufacturing and service sectors have become largely IP-based, the next company you buy will likely have a lot of intellectual property among its main assets. That makes acquisition-related IP issues worth reviewing periodically. Even the obvious kinds of IP -- patents, copyrights, trademarks and trade secrets -- are subject to new developments. And issues with less familiar forms of IP, such as databases of consumer information, are surfacing more frequently.

Start with patents, which more than ever must be viewed as both assets and liabilities. Assessing the quality of a target's patents is complex and costly and requires answering several questions. Have the patents been tested through litigation? Do they cover the target's technology? Do they prevent others from practicing it? If the patents come up wanting, does this materially affect the purchase decision?

With patent litigation on the rise, the liability question is especially tricky. Ideally, due diligence should include analyzing relevant patents held by competitors and also patent trolls. Does the target have the freedom to practice its technology? Can potential infringement be addressed by obtaining a license from the relevant patent owner, and if so how does the cost factor into the purchase price? Unfortunately, patent due diligence is often inconclusive, so risk allocation through representations and warranties, particularly if they are limited to "knowledge" (as is often the case), has limited value.

Copyrights, which protect expressions in a fixed, tangible medium, have historically been most important for targets in the print, music, video, performance and publishing industries. But even for dealmakers outside these realms, copyright is of growing importance. It serves as a prohibition against the pirating of proprietary software, such as running too many copies of a licensed computer program. It even may serve to limit use of "open-source" software that has incorporated copyrighted code. Most notably, the popular free Linux operating system has been accused of infringing copyrighted code.

Trademarks and service marks continue to be valuable as the means for competitors to distinguish their products and services. However, in the era of the virtual company and the Internet, for many target companies the trademark is becoming one of the main assets. In particular, dealmakers may need to focus on Internet domain names and the interplay between trademark law and the domain name registration system.

Trade-secret law continues to carry great importance, protecting information that provides a target with a competitive advantage, is not generally known by its competitors and is subject to reasonable secrecy efforts. However, in today's highly fluid employment and contractor market, coupled with the growing importance of know-how, keeping secrets is becoming more difficult and more important. Due diligence should assess whether the target has taken proper precautions to protect its trade secrets, by limiting dissemination of secrets and securing know-how assignments, nondisclosure agreements and noncompetes with employees and independent contractors. Outsourcing across borders adds another wrinkle, as other countries view trade secrets differently. In Taiwan, for example, stopping trade-secret misappropriation rests in the hands of a criminal prosecutor, and the secret's owner has no civil redress.

In consumer products and services businesses, customer information is becoming increasingly valuable for many companies. Their rights in this IP area still qualify as "trade secrets" -- at least regarding the database as a whole, and the right to treat it as property and exclude others from using it. But the data subjects themselves increasingly have rights to their own personal information under a burgeoning mosaic of privacy, information security and data protection laws. In an acquisition then, dealmakers must assess the importance to the target of databases of personal information, the existence (or lack) of consents and the quality of the consents and recordkeeping. At the extreme, such as in the Toys.com bankruptcy, lack of consent or an especially customer-friendly privacy policy may preclude the sale of the asset.

IP issues in acquisitions continue to evolve. So, in turn, do the ways well-informed dealmakers handle them. - Richard Keck and Philip C. Thompson

Richard Keck and Philip C. Thompson are partners in the Atlanta office of Duane Morris LLC, practicing in corporate and M&A law. James Y.C. Sze is counsel in the firm's San Diego office, practicing in intellectual property law.

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