Turkey: Toughest Work In Technology Transactions: Due Diligence Turnaround

In legal literature, due-diligence is the investigation conducted by a party of a business transaction or a contract for the purpose of reviewing relevant information and documents of the counterparty with regards to such transaction and contract. Documents and information reviewed include but not limited to: articles of association of a company, audit reports, financial reports, information regarding tangible and intangible assets, licenses and permits, intellectual property as well as the agreements entered into with 3rd parties. Due-diligence is a term mainly used in mergers and acquisitions, however it is also used for the other legal and financial transactions in technology transactions. The type of due-diligence to be conducted may differ depending on the characteristics of the transaction. Although, Turkish law does not stipulate the due-diligence concept, it is an undeniable stage in a transaction that may affect the content of the agreement to be signed between the parties of the transaction.

Considering the significance of the intellectual property rights in technology transfers, due-diligence of such rights comes into prominence. In technology transfer, transferee is expected to fully enjoy the rights come therewith. Infringement of such rights or any other third-party claims may prevent the transferee from exercising its own rights. As such, a due-diligence is required to ensure that any intellectual property rights subject to transfer are free of any third-party claims.

First thing to do in scope of the due diligence is to identify intellectual property rights related with the technology transfer. A list consisting of copyrights, trademarks and any other intellectual property rights must be included in the technology transfer agreement or its annexes by the party conducting the due-diligence. Following the determination of intellectual property rights, ownership of those rights should be investigated. To maximize the benefits of the transfer, the transferor of intellectual property rights should be determinable. Some intellectual property rights may be owned by an individual related with the legal entity such as a shareholder rather than then the legal entity itself. Therefore, determining the ownership of an intellectual property right is crucial for an adequate technology transfer.

Patent due-diligence is also prominent for technology transfers that includes patent rights.1 Within the scope of the patent due-diligence, technical, economic and legal functionality of a patent is investigated. An investigation to assess the legal protection against future claims is conducted and eventually managerial rights regarding the commercialization model. A detailed review of the patent application covering abovementioned issues and possible affiliated rights that may be subject to a licensing agreement. Due diligence reveals the commercial value of the commercial transaction and also prospective risks and opportunities regarding the technology in question. Potential infringement claims may also become accurate e during and after the due-diligence process with regards to protective legal approach.

Documents and information to be reviewed during Due-diligence conducted within the scope of technology transfer include:

  • Documents and information regarding intellectual property rights associated with the technology transfer;
  • If the right of use of the intellectual property associated with the technology transfer is transferred to a 3rd party or parties, transfer agreement and other related documents;
  • If the intellectual property associated with the technology transfer is a subject of a licensing agreement, licensing agreement and other related documents;
  • If the subject of a technology transfer is an employee invention, agreement signed with the employee regarding the invention and any royalties paid or being paid in accordance with such agreement and other relevant documents;
  • Documents and information regarding any on-going dispute related with the technology in question or intellectual property rights thereof;
  • If the transferor is conducting research and development activities, documents and information related with such activities; and
  • Documents and information regarding the limited real rights established on the technology in question.

A thorough due-diligence is an important tool for the transferee to maximize the benefits of the technology transfer. A due-diligence is also valuable for the prevention of the post technology transfer risks for both parties. Provisions prescribed in the technology transfer agreement is important for both parties for the protection of their own rights and an accurate analysis of present conditions would be a strong foundation for commercialization of intellectual property rights which would lead to creating additional value related therewith.

Footnote

1 Gogoris, Adda C., and Patricia J. Clarke. "Patent due diligence in biotechnology transactions." Bioentrepreneur 19.3 (2001): 279.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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