The M&A and Acquisitions Involving Intellectual Property B Y - PDF document

LAWYER March 2008 ■ Volume 12 ■ Issue 3 Antitrust Angle : Antitrust Implications of Mergers The M&A and Acquisitions Involving Intellectual Property B Y P H I L L I P A . P R O G E R A N D G E O F F R E Y D . O L I V E R Phillip Proger and Geoffrey Oliver are partners in the Washington, D.C. offi ce of Jones Day. Mr. Proger is Chair of the fi rm’s antitrust & competition law practice, while until 2007 Mr. Oliver was the Assistant Di- rector responsible for the Anticompetitive Practices Division of the Federal Trade Commission’s Bureau of Competition. “Antitrust Angle” is an occasional column on antitrust issues. Contact: paproger@jonesday. com or gdoliver@jonesday.com. Much attention is focused, as it should be, trust analysis of mergers and acquisitions. on the antitrust analysis of an acquisition of Two of the most important are market defi ni- an on-going business or physical assets. The tion and evaluation of potential anticompeti- antitrust implications of an acquisition in- tive effects. volving intellectual property , however, tend A. Analysis of Relevant Markets to be overlooked. This can be costly . Intellec- Antitrust analysis typically begins with tual property issues can pose hidden risks and identifi cation of the relevant market or mar- traps for the unwary , but may also present af- kets in which any effects of a transaction fi rmative opportunities to obtain antitrust are likely to occur. While most transactions clearance. The potential implications extend not only to the substantive antitrust assess- CONTINUED ON PAGE 4 ment of mergers and acquisitions, but also to whether pre-merger fi ling and waiting-period Content HIGHLIGHTS requirements are triggered and how due dili- United Rentals Denied Specific Performance, gence is conducted. Cerberus Walks : Use of Forthright Negotiator As our economy continues to evolve, the Principle a Cautionary Tale for M&A Professionals importance of transactions involving intan- By Bruce B. Kelson, David M. Grinberg and Gordon gible assets will continue to grow . M&A law- M. Bava; Manatt, Phelps & Phillips LLP (Los Angeles, San Francisco) .................................................................9 yers are likely to fi nd it increasingly helpful to be aware of the potential implications of Save U.S. from CFIUS : The Foreign Investment and antitrust law for transactions involving intel- National Security Act of 2007 and Its Effect on lectual property . Foreign Investment By Ralph Ferrara and Carlo Mosoni; Dewey Substantive Antitrust Analysis & LeBoeuf LLP (Washington, DC) ................................16 Intellectual property is likely to have a sig- nifi cant impact on multiple aspects of anti- Complete Table of Contents listed on page 2. 40602833

The M&A Lawyer CONTINUED FROM PAGE 1 where intellectual property licensing is not necessar- ily the primary line of business of the acquirer or involve one or more markets for physical products, the target but nevertheless may be vitally important many transactions also impact ongoing innova- to competitive conditions. In such instances, intellec- tion as well as intellectual property protecting that tual property portfolios may constitute a relatively innovation. In a number of transactions, the U.S. small portion of the parties’ business, but the DOJ Department of Justice (“DOJ”) and the Federal and FTC may defi ne a technology market separate Trade Commission (“FTC”) have placed particular from the product markets in question, 4 with po- emphasis on analysis of intellectual property rights tentially important consequences for the antitrust when defi ning and analyzing the relevant market. In analysis. addition to considering intellectual property rights A leading example is the FTC challenge to a pro- as part of a relevant product market, the DOJ and posed joint venture combining the respective poly- FTC have defi ned technology markets and innova- propylene businesses of Montedison S.p.A. and Roy- tion markets that focus on IP licensing and innova- al Dutch/Shell. 5 Although the two companies held tion, respectively . only a moderate share of the production of polypro- Product Markets. In traditional markets, fi rms may pylene, they were leading licensors of polypropylene compete primarily in the manufacture and sale of technology to other producers. On a combined ba- physical products. Antitrust analysis often focuses in sis, the technologies licensed by Montedison (togeth- considerable part on market activities relating to the er with its partner Mitsui Petrochemicals) and Shell relevant physical products. Y et intangible assets can (together with its partner Union Carbide) accounted have a critical impact on the analysis of such product for over 80% of all existing and projected polypro- markets. Intellectual property rights may create ob- pylene capacity . The FTC’s consent order required stacles to entry by new fi rms, thus exacerbating any Royal Dutch/Shell to divest its polypropylene assets, competition problems. For example, the DOJ decid- technology and licensing business to Union Carbide ed to challenge the proposed acquisition by Franklin or another approved buyer. 6 Similarly , six years later, Electric Co. of United Dominion Industries not only the FTC applied a similar analysis to the proposed because the proposed transaction appeared likely to formation of a joint venture by Union Carbide and reduce competition in the market for submersible Dow Chemical. Union Carbide was the leading li- turbine pumps, but also because Franklin Electric’s censor of technology used in the production of lin- patent portfolio appeared likely to deter new entry ear low density polyethylene, and developed related into the market. After trial, a district court granted the DOJ’s motion for a permanent injunction. 1 Simi- metallocene catalyst technology in a joint venture with Exxon. BP was the only other signifi cant li- larly , the DOJ challenged the proposed acquisition censor of polyethylene reactor technology , and was by 3D Systems Corporation of DTM Corporation in part because “the two companies held extensive working with Dow to combine Dow’s metallocene technology with BP’s polyethylene process. The patent portfolios that likely created an insuperable entry obstacle” into the market for industrial rapid FTC’s consent order required Dow to divest its intel- prototyping systems. 2 The matter was resolved by lectual property relating to gas phase polyethylene consent decree. Conversely , DOJ decided not to chal- production and to license to BP , with the right to lenge Cinram International Inc.’s acquisition from sublicense, its metallocene catalyst technology . 7 AOL Time Warner Inc. of assets for the replication Recent cases involving computer software also of CDs and DVDs in part because the technology involved licensing activities, but the DOJ and FTC necessary for entry into the market was readily avail- did not defi ne separate technology markets because able for license from patent pools. 3 the parties’ product lines and intellectual property Technology Markets. Certain transactions may licensing activities were inseparable. The agencies involve a technology market – that is, a market in defi ned product markets in a manner that captured which companies compete to license rival intellectual the parties’ licensing activities, thus eliminating any property . Complicated situations can arise in indus- need to defi ne separate technology markets. The tries such as computers, electronics and chemicals, highest-profi le example in recent years was the DOJ’s 4