Tech­nol­ogy is intan­gi­ble, in par­tic­u­lar for M&A lawyers mak­ing tech­nol­ogy deals from their desks, far away from the asset. Intan­gi­ble assets are gen­er­ally hard to grasp and may raise cer­tain issues dur­ing a trans­ac­tion. This arti­cle high­lights some of the typ­i­cal issues in M&A tech­nol­ogy trans­ac­tions and sug­gests solu­tions to tackle/avoid them.

What is "Technology"?

From an M&A lawyer's per­spec­tive, "tech­nol­ogy" is dif­fi­cult to grasp: it is a mix of dif­fer­ent intel­lec­tual prop­erty rights (IPRs), includ­ing patents, util­ity mod­els, copy­rights, semi­con­duc­tor chip designs, as well as know-how and busi­ness secrets. Tech­nol­ogy as such is thus not tan­gi­ble, and that raises cer­tain issues in and brings com­plex­ity to a trans­ac­tion. This arti­cle high­lights some typ­i­cal exam­ples of such issues and sug­gests solu­tions to tackle/avoid them.

Seller's Issues: How to pro­tect the technology?

A Seller must be aware that any deal can "die" and in the cur­rent M&A envi­ron­ment, the chances that a deal dies are – quite frankly and unfor­tu­nately – not low. Work­ing on the sell-side of a trans­ac­tion, one must there­fore avoid that if a deal dies (for what­ever rea­son), the bid­der walks away and starts up the busi­ness of the tar­get com­pany with the infor­ma­tion it gleaned dur­ing the due dili­gence / con­tract nego­ti­a­tions. The first (and least) thing a Seller can and should do is to intro­duce a water-proof con­fi­den­tial­ity regime, con­sist­ing of (i) a non-disclosure / con­fi­den­tial­ity agree­ment (NDA), (ii) a non-solicitation oblig­a­tion (to pro­tect the tar­get company's employ­ees; usu­ally, this is part of an NDA), and (iii) a proper data room regime (green / red / black data room rules), before any con­fi­den­tial infor­ma­tion is dis­closed. In addi­tion, a Seller may want to seek (fac­tual) pro­tec­tion by thor­oughly con­sid­er­ing if and when it dis­closes a cer­tain (not-registered) tech­nol­ogy to a Bidder...

The text below dis­cusses two selected issues con­cern­ing NDAs:

Def­i­n­i­tion of "Con­fi­den­tial Information"

A major issue in NDAs is how "con­fi­den­tial infor­ma­tion" is defined. Should orally sub­mit­ted infor­ma­tion be part of the con­fi­den­tial infor­ma­tion? Do doc­u­ments nec­es­sar­ily need to reflect the con­fi­den­tial­ity nature (eg by bear­ing the words "CONFIDENTIAL" or sim­i­lar)? Sell­ers want to have a broad def­i­n­i­tion, Bid­ders want to nar­row it down. In any case, Sell­ers should con­sider list­ing spe­cific exam­ples to clar­ify the scope of the def­i­n­i­tion (thus avoid­ing any dis­cus­sion whether eg sketches or drafts of pro­to­types or devel­op­ments dis­closed at site vis­its are included).


Under Aus­trian law, the breach of an NDA enti­tles the ben­e­fi­ciary to claim dam­ages from the vio­lat­ing party. There are numer­ous ques­tions con­nected with this (actu­ally sim­ple) prin­ci­ple. For instance, what is the dam­age if the Bid­der dis­closes the tar­get company's key tech­nol­ogy? Is the Bid­der liable for breaches of its advi­sors? Does the Seller need to prove neg­li­gence on the part of the Bid­der? A Seller may want to clar­ify these issues rather than rely­ing on statu­tory law. Also, the Seller may want to con­sider intro­duc­ing a con­trac­tual penalty for breaches (or pos­si­bly only for the dis­clo­sure of cer­tain tech­nolo­gies?), a pill that is usu­ally hard to swal­low for a Bidder.

Bidder's Issues: How to iden­tify and ver­ify the technology?

At the begin­ning of a legal due dili­gence, it is cru­cial to dis­cuss and clearly deter­mine the scope of the legal due dili­gence review. In par­tic­u­lar, the par­ties should dis­cuss (i) which tech­nol­ogy of the tar­get busi­ness is impor­tant for the client going for­ward, and (ii) (ide­ally) what are the post-closing plans with the tech­nol­ogy (eg does the client want to exploit a tech­nol­ogy in cer­tain (new) juris­dic­tions?). The legal advi­sor must then assess how to deter­mine and analyse the tech­nol­ogy, eg via infor­ma­tion in the data room (eg lists or owned/licensed IPRs) or the Q&A process. A good legal advi­sor should nev­er­the­less inform its client about what can­not be ver­i­fied at all in a legal due dili­gence, eg mat­ters not reflected in a reg­is­ter excerpt, events since the date of the reg­is­ter excerpt pro­vided in the data room, or non-compliances that are not dis­closed (eg does the tar­get really use a spe­cific soft­ware only on five work­sta­tions, as pro­vided for in the license agree­ment?). For such "gaps" and any other issues iden­ti­fied dur­ing a legal due dili­gence, the Bid­der must rely on the rep­re­sen­ta­tions and war­ranties agreed in a trans­ac­tion document.

Rep­re­sen­ta­tions and Warranties

In the trans­ac­tion doc­u­men­ta­tion, the rep­re­sen­ta­tions and war­ranties (RW's) may then focus on cir­cum­stances con­cern­ing the technology-relevant IPR's, which may include inter alia:

  • Rights (own­er­ship, license) to IPR as cur­rently used (and as actu­ally intended to use?)
  • No lim­i­ta­tions or restric­tions to use or exploit IPR
  • Valid­ity and enforce­abil­ity of IPR
  • No dis­putes (includ­ing threat­ened ones?) relat­ing to IPR
  • No infringe­ment of IPR of the tar­get com­pa­nies and by the tar­get com­pa­nies (of third-party IPR)
  • Proper pro­tec­tion and doc­u­men­ta­tion of trade secrets / know-how
  • No change of con­trol clauses in license agreements?
  • No harm­ful soft­ware codes (virus, tro­jan horses, etc)
  • Hard­ware in good work­ing order, fit for use
  • No sys­tem fail­ures in recent periods

Sell­ers may want to oppose these RW's by (i) nar­row­ing the scope of the RW's to reg­is­tered IPR (which in Aus­tria would eg not cover copy­rights), (ii) exclud­ing IPR that is avail­able on the mar­ket (eg off-the-shelf soft­ware prod­ucts), (iii) exclud­ing war­ranties on infringe­ment of third-party IPR gen­er­ally or at least nar­row­ing the RW down to (a) known infringe­ments or (b) alle­ga­tions in writ­ing, and (iv) gen­er­ally, intro­duc­ing mate­ri­al­ity, "best knowl­edge" and dis­clo­sure qual­i­fiers. For both par­ties, a detailed RW-by-RW assess­ment, involv­ing com­pe­tent IP lawyers, is essen­tial to prop­erly reflect the par­ties' inter­ests and to pro­tect them from risks.

Quote: Due to the legal nature of technology, a technology-focused M&A transaction requires thorough considerations on both the Seller's and the Bidder's end, in particular when it comes to (i) the protection of technology during the transaction and for broken deals, (ii) the identification and verification of technology during the due diligence and (iii) the protection of technology and the protection of the parties' interests when executing the transaction.

This article was originally published in the schoenherr roadmap`14 - if you would like to receive a complimentary copy of this publication, please visit:

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.