Snapshot: tech M&A purchase agreements in Austria
Representations and warranties
In technology M&A transactions, is it customary to include representations and warranties for intellectual property, technology, cybersecurity or data privacy?
Yes. We typically see customary representations and warranties on the following.
That the target company owns all registered rights, title and interest, free of all encumbrances, and pledges, security interests or any other third-party rights in and to the patents, utility models, trademarks, service marks, design rights and domains, including registrations and applications for registration owned by the target company, or to which the target company has exclusive, perpetual, worldwide and unrestricted rights of use.
That licensed IP rights are sufficient for the conduct of business as currently conducted by the target company.
That in the event of jointly developed IP rights, the target company has all rights to use such IP rights as currently used to conduct business.
And that the target company complies with all licences licensed in or out, including open-source licences; there is no copyleft effect for open-source software components used in the code; there is adequate protection of the code and other business secrets; and no disputes pending or threatening.
IT (hardware and software)
- Sufficiency of software licensing status;
- compliance with software licences;
- adequate protection of source code(s);
- no copyleft effect (in the case of open-source software being used);
- adequate anti-virus protection of the target company’s network;
- ownership or sufficient rights to use hardware (IT systems);
- proper maintenance of IT systems;
- no interruptions or breakdowns of IT systems; and
- Compliance with the GDPR and local data protection laws, (particularly the lawful data processing and lawful transmission of data within the European Union and with third countries);
- absence of (known) data breaches; and
- no threatening and pending litigation.
- Compliance with public laws and orders (permits); and
- all required regulatory licences, approvals and permits to conduct business have been obtained.
Customary ancillary agreements
What types of ancillary agreements are customary in a carveout or asset sale?
We typically see classical transitional services agreements, transitional (trademark) licences agreements, reverse transitional services and licence agreements and de- or re-branding agreements.
Conditions and covenants
What kinds of intellectual property or tech-related pre- or post-closing conditions or covenants do acquirers typically require?
We would typically request for the (re-)execution of IP transfer agreements between the target business and its employees, contractors, founders and shareholders to confirm full ownership of IP rights. Depending on the transaction, we may confirm between signing and closing that the target business has the know-how to continue development of software after closing (eg, if the key persons are also sellers and leave the target business after closing).
Are intellectual property representations and warranties typically subject to longer survival periods than other representations and warranties?
There is no established market practice for separate IP survival period. Buyers typically request a minimum period of three to five years, while sellers naturally push heavily back. Often, IP matters fall into the survival period for operational representations and warranties.
Breach of representations and warranties
Are liabilities for breach of intellectual property representations and warranties typically subject to a cap that is higher than the liability cap for breach of other representations and warranties?
There is no established market practice for separate IP caps. Buyers typically request a separate cap that is either higher than or fully separate from (and therefore on top of) the cap for operational warranties. Sellers typically push heavily back. A typical cap ranges between 10 per cent (in addition to the cap for operational representations and warranties) and 50 per cent (if such cap is counted towards the cap for operational representations and warranties) of the purchase price. Some buyer request caps closer to 100 per cent of the purchase price, or even do not accept any cap on IP matters (in particular IP infringements), but that is rarely acceptable to sellers in Austria. Often, IP matters fall into the cap for operational representations and warranties.
Are liabilities for breach of intellectual property representations subject to, or carved out from, de minimis thresholds, baskets, or deductibles or other limitations on recovery?
Liabilities for breach of IP representations are typically not subject to, or carved out from, de minimis thresholds, baskets, or deductibles or other limitations on recovery.
Does the definitive agreement customarily include specific indemnities related to intellectual property, data security or privacy matters?
Market practices tend to treat data protection compliance similar to taxes and environmental issues (ie, by respective indemnities). Unless there is a reason for suspecting IP infringements or if such (alleged) infringements were disclosed, buyers tend to rely on IP representations and warranties rather than requesting a separate IP indemnity.
As a closing condition, are intellectual property representations and warranties required to be true in all respects, in all material respects, or except as would not cause a material adverse effect?
Correctness of IP representations and warranties as a closing condition is typically heavily negotiated. We cannot confirm that such conditions are market practice given that recent M&A environment in Austria was seller-friendly. The absence of claims for material IP infringements by third parties is often a compromise that is acceptable to all parties.