Technology M&A

Technology M&A in Brazil differs from ordinary M&A transactions owing to specific laws and regulations applicable. Besides general copyright regulations (Law No. 9,610/1998, the Berne Convention and the Agreement on Trade-Related Aspects of Intellectual Property Rights), intellectual property related to software is further regulated by Law No. 9,609/1998. There are also specific rules dealing with the use of the internet, with a potential impact on technology business (Law No. 12,965/2014), and personal data privacy (Law No. 13,709/2018, which will enter into force in February 2020).

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There is no current provision or past record of government march-in or step-in rights. However, exclusive exploration of IP rights is time-limited before ending up in the public domain.

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Legal title over technology and IP assets and rights, when registered before the National Institute of Industrial Property (INPI), is conveyed through the expedition of the respective certificate, according to the rules established by Law No. 9,279/1996 and Normative Instruction INPI No. 70/2017.

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Due diligence in technology M&A transactions must cover the analysis of the situation of the assets and the rights, and consider any possible objection from third parties that may affect their property and exploration. In the case of carveouts or asset purchase, there is the additional concern of properly transferring property title before the INPI.

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The INPI offers public tools to search and verify the situation of assets and rights. Besides this, the main process of registration steps are available in the public records. Additionally, there are private companies that perform additional searches for competitors and potentially equivalent property.

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Invention, innovation or utility models can be patented. Brands, logos, projects, and hardware and software can be registered. Personal creation and source codes of software can be copyrighted. Due diligence to each must verify title situation of the assets and identify possible upcoming conflicts with third parties.

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There is no restriction to liens or security interest granted on IP or technology assets, nor a specific process to publicly record such grant. Contractual representation and warranties are commonly required to assure acquirers’ uncontested property.

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Due diligence with respect to employee- and contractor-­created intellectual property and technology aims to ensure title over their rights. Parties must have formally agreed on the transfer to the target.

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Transfer or assignment of licensed intellectual property and technology shall be registered before the INPI, with specification on the term and exclusivity traits of the operation.

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Software due diligence aims to verify property of software developed or acquired by a target, and authorisation to explore software in use in the business. Open source codes are not provided to each other.

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Deals with special or emerging technologies and sensible to the point that regulation has been rapidly developing. Therefore, risk of restrictions to the application of the new technology ought to be searched, identified and considered before the deal is finalised.

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Absolutely. Representation and warranties are fundamental to protect an acquirer from aspects not disclosed or identified during the due diligence process. In general terms, these clauses must cover the legitimate title of property and absence of claims from third parties or authorities.

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The most relevant ancillary agreements are those that bind target’s customers to keep contracts in force despite the transfer or assignment of IP assets and rights. Communication of the transfer of property to the INPI is also needed to give notice to third parties.

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Acquirors typically require target to take all procedures necessary to embed the transfer of title of the intellectual property. Historic studies, related to the development of such property, are also usually requested. Immediate changes and future assistance - according to the case - may be negotiated.

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Survival periods of representations and warranties are equivalent to the period in which breaches might be identified or cause effects to the acquirer. While the target wishes to close the deal, the acquirer seeks to ensure implementation of the transaction and its desired effects.

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It cannot be said that liabilities for breaches of IP representations and warranties are typically subject to a higher or lower cap than the liability cap for breach of other representations and warranties.

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There is usually no limitation of liability for the breach of IP representations. On the contrary, in cases of material breaches that compromise the premises of the deal, there are situations in which the whole deal can be undone and the acquirer claims for damages.

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Definitive agreements usually include specific indemnities related to the functionality of intellectual property and losses that derive from data security or privacy matters.

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There is no general rule as to if truthfulness of IP representations and warranties is required in all aspects or only to the extent that they do not cause a material adverse effect. This will depend on the type of intellectual property being transferred and the level of tolerance the acquirer has to future change.

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Brazil’s General Data Privacy Law, modelled on the provisions of the EU General Data Protection Regulation, is currently the hottest topic. The rules regarding the outsourcing of employees has recently gone through the relevant changes, the topic of compliance still attracts lots of attention and discussion, and mediation is likely to be affected by new and innovating changes in technology.

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