Legal strategies for acquisitions in content-based e-commerce industry
500m+ smartphone users in India. 77% online.
Online content marketing has turned into a massive opportunity for businesses. The combined strength of social media posts, SEO tools for website, and storytelling chops of the blog are practically indispensable to drive internet users to e-commerce brands now.
Brand awareness, brand equity, marketing strategy, lead generation all rely far more on pull marketing rather than push marketing.
Bottomline is, everyone who is selling needs literary and visual assets that not only SHOW instead of TELL the sellers brand story, but also STAND OUT from every other asset telling anyone else's story.
With all these sellers wanting unique creatives, the question is: how much NEW is out there?
THE TING! IN CONTENT-MARKETING: Or how it reaps moolah as business
Direct-to-consumer (D2C) businesses in India stand at a whopping 500+ brands as of today. We also have the last five lockdown months to thank for this. D2C brands are scaling up online at twice the pace of offline, and this is a play of the "marketing economy".
India is reportedly estimated to have close to 330m digital buyers this year. The key will be in unlocking revenue. To do that direct sales pitch strategies stand diluted. Subtle content marketing has taken over. While content marketing cannot replace sales in sustaining business, it forcefully supplements the sales function by generating brand equity.
D2C's control over brand perception and consumer interaction is intuitive now. It is far more significant now than it was before social media completely took over. A gamut of inbound marketing plug-and-play tools are available at its fingertips.
Indian brands are leveraging online channels to reach consumers and make sales. Brands are looking to partner with businesses that are experts in online marketing tools and strategies. E.g., Online D2C cosmetics brand MyGlamm acquired our client POPxo this month. POPxo is a content based e-commerce business. Its blogs, vlogs and social media picture-caption posts target female consumers of beauty and lifestyle products.
Types of Acquisition
What is being transferred/assigned?
Contracts, employees, physical assets, current assets, licenses, approvals, IP etc. which are common with the acquisition of any other company.
Information Technology Act 2000 and The Rules 2011:
The data privacy of customers or users of the acquired company would also have to be protected and adequate compliance with the extant privacy laws under the present IT Act, 2000 and soon, the Personal Data Protection Bill, 2019 would also have to be ensured in an acquisition of a content based e-commerce company.
HOW ELSE DO YOU ENSURE SMOOTH ACQUISITION?
Put in place an internal 'cleaning' exercise that leads to efficient negotiations and faster closing of the acquisition.
Other benefits of 'cleaning' exercise:
- Set appropriate acquisition value
- "key" disclosures are made upfront and well in advance
- Smoothens negotiations
- quicker transaction.
- Reduce the extent of warranties and indemnities that the acquirer seeks.
How to accomplish all this? DUE DILIGENCE.
VENDOR DUE DILIGENCE
An internal due diligence, is important for a company attempting its sale.
1. Assets are secured in the name of the company
2. Contracts are validly executed, stamped and renewed
3. There is no pending litigation, or check status of pending ones
4. Approvals or licenses are not pending renewal
5. No dues outstanding of employees
|ACQUIRER DUE DILIGENCE||
Like any acquisition, in an acquisition of a content based business also the acquirer generally conducts a due diligence of the target.
Various facets of the target business are investigated by the Acquirer before he signs the deal:
· Corporate information
· Secretarial compliances
· Intellectual Property
When we say marketing content is an asset, its key metrics lie in its:
Content is an important asset for a business that uses the internet to expand is outreach.
The primary principle being followed by the content based e-commerce industry is that targeted delivery of content (relatable and compelling content reaching target market) will push sales of products. So, the value in this content gets directly linked to the sale it generates.
THE PROTECTION of this value?
Under applicable law, especially intellectual property ("IP") laws, it has become extremely important to secure its ownership owing to the massive levels of innovation and critical inside information about the brand that go into targeted content.
Moving ahead, we will attempt to detail a few key issues that players in the content based e-commerce industry need to keep in mind about the ownership of content.
- Written content: All written content is protected as 'literary work' under the Copyright Act, 1957 ("Act"), and would therefore be eligible for all protections afforded under the Act.
The questions that arise?
Who owns written material created by the employees of a content based marketing (CM) company?
In the absence of a contract to the contrary it is intellectual property of the employer by default.
Who owns the written material created by freelancers/consultants/vendors working with the CM company?
In the absence of a contract to the contrary it is intellectual property of the freelancer/consultant/vendor by default.
Who owns the written material created by anyone in general?
The author of the work. Deemed first owner.
Our actionable step as CM company/buyer of CM company?
Check the existence of employment agreements that clearly and exhaustively state that all written material created by the employees during the term of their employment is exclusively the IP of the employer company.
Similarly, if content is being created by freelance authors, consultants or hired agencies, it is imperative that the contract for hire/service contains provisions for protection of IP in favour of the content company.
A work-for-hire concept would not however, be applicable in cases of independent authors.
- Pictures, animation, photos and other artistic material: These would be protected as 'artistic works' under the Act.
Are ownership laws of these different from those applicable to literary works?
Similar ownership restrictions and regulations in relation to employees and consultants, as mentioned for literary works, would be applicable here.
Additionally, for photographs, paintings, portraits and engravings, the artist/person involved in their creation would be deemed to be the owner and would accordingly be protected.
- Films or videos: These are referred to as "cinematographic films" under the Copyright Act 1957.
Are ownership laws of these different from those applicable to literary and artistic works?
In the case of a work created by an author in the course of his or her employment under a contract of service or apprenticeship, then the employer is the first owner of the work have similar ownership restrictions on employees.
What about rights other than ownership rights, e.g. royalty?
Contracts of employment or for employment do not affect the rights of a person who is the creator of any original literary, dramatic, musical or artistic work that is incorporated in a cinematograph film, as has been clarified by the 2012 amendment to the Act.
- Database: All computer databases (including, but not limited to details of customers, vendors, suppliers, service providers etc.)
What category of legally protected work do these belong to.
They form a part of 'literary work' under the Copyright Act.
How do we protect them?
Databases should be specifically identifiable to be eligible for IP protection under the Act.
- Symbols, logos, tag lines: Any designs created by a company/business such as symbols, logos or taglines for the promotion or identification of its products and/or services.
Are these legally protected?
The Trademark Act, 1999 ("TM Act") protects trademarks in India.
How to protect them?
Register them as trademarks in the name of the company to secure them under the TM Act.
What is the exact mechanism to guarantee their protection under the TM law?
It may be necessary for the company to enter into assignment agreements with the creators of logos, symbols, etc. with previous owners.
- Domain names: Domain names can be treated both as trademarks or as an independent specific category of intellectual property altogether.
When registered as trademarks?
Domain names of websites may be registered as trademarks and have similar protections under the TM Act.
What if we did not register our domain names?
If not registered, domain names are protected under international and domestic systems of protection against cyber squatting etc. such as Uniform Domain Name Dispute Resolution (UDRP), etc.
Domain names are IP and are assignable, even without being registered as trademarks.
- Carriers of content: IPs in websites and applications are in general protected as copyright under the Act as 'literary works'.
How to transfer the intellectual property in websites and applications?
It is important that the assignment clauses of relevant agreements contain references to details such as object code, source code, API files etc. to include such IP in the transfer/assignment and for effective protection and enforcement.
- Social media pages and access rights: Not a separate category of intellectual property as a page as whole, though the content in those pages is protected as literary, artistic, etc. work. But access right to a social media page is a right given by the agreement entered into by the page user with the relevant social media company. This agreement is in the form of a click-wrap agreement.
Social media pages have immense value due to their visibility and traction. How to acquire them?
For an acquirer (willing to acquire the content based e-commerce business), it is important that the rights to access through the user name, password and OTP verification number etc. are secured in the relevant assignment/transfer agreements.
Tendency to catch eyeballs motivates content writers and other creatives working for the CM company to generate controversial content.
This content may sometimes be borderline and sometimes directly in violation of existing laws, rules and regulations and may attract defamation suits, SLAPPs, etc. leading to significant costs on the business in terms of time, money and reputation.
Plagued by these concerns even the central government (Meity) has come out with self-regulation guidelines for social media platforms used by government agencies. Access here
CM company buyers and sellers need to ensure the existence of internal self-regulation guidelines for creation of content. It needs to be updated from time to time.
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.