Thoughts on Goodwill Protection and Trademarks in Finnish IP Litigations (in Finnish: Goodwill-suoja ja tavaramerkit suomalaisissa IP-litigaatioissa)

Kun kesäloma on vielä hieman kesken, olemme pitäneet taukoa M&A-aiheisessa juttusarjassamme ja sen sijaan ajattelin laittaa teille linkin tähän viimeisessä IPR Infossa julkaistuun artikeliin, jonka olen laatinut yhdessä OTK Kiira Lehtosen kanssa. Norkkimisen eli goodwill-suojan myöntäminen jakaa mielipiteitä edelleen. Näin immateriaalioikeuslitigaatioiden kannalta kyse on usein siitä, milloin brändinhaltijalla on mahdollisuus kieltää tai rajoittaa kilpailijan jäljitelmien myyntiä ja markkinointia, jos kilpailija on käyttänyt tuotteessa omaa tavaramerkkiään? Tässä muutama esimerkki ns. "copycat"-tuoteista: linkki, niin voit myös itse testata onko kussakin kuvassa kyseessä sama vai eri tuote.

Erityisen ajankohtaiseksi aiheen tekevät Suomessa markkinaoikeuden viimeaikaiset ratkaisut, joista on keskusteltu paitsi AIPPIn ja STY:n vuosittaisessa IPR-päivässä, myös IPRinfo-lehden numerossa 1/2013. Lähtökohtana suojan myöntämiselle on oikeuskäytännössä katsottu olevan, että I) on tapahtunut toisen maineen ja tunnettuuden hyväksikäyttö; II) hyväksikäyttö on oikeudeton; ja III) hyväksikäytön kohteena oleva esimerkiksi tuote, palvelu tai muu liiketoiminnan tekijä on siten tunnettu, että se voidaan yhdistää taustalla olevaan elinkeinonharjoittajaan. Orjallisen jäljittelyn tavoin sekoitettavuutta ei kuitenkaan varsinaisesti edellytetä.

Imitointi on myös yksi keskeisimpiä tekijöitä kilpailun ja kulttuurin kehityksessä. Omat näkemyksemme perustuvat ajatukseen, että pitkällä tähtäimellä vapaa kilpailu johtaa yhteiskunnan kannalta kokonaistaloudellisesti tarkastellen parhaaseen mahdolliseen lopputulokseen. Esimerkkinä voidaan pitää sodanjälkeisen Saksan autoteollisuuden kehitystä. Vapaan markkinatalouden Länsi-Saksasta ovat useat maailman johtavista automerkeistä peräisin, kun taas suunnitelmatalouden Itä-Saksan ”itäautot” ovat lähinnä surullisenkuuluisia. Rajoittamalla immateriaalioikeuksilla vapaan kilpailun periaatetta meidän tulee samalla huolehtia siitä, ettemme tee liian laajoja poikkeuksia, joita emme voi perustella yhteiskunnan saamilla vastaavilla hyödyillä. Tämä pätee myös goodwill-suojan laajentamiseen. Monopolit ovat lähtökohtaisesti siis tehottomia, joten myös tavaramerkkien olemassaololle tulee löytää oikeutusperusteet. Tällaiset löytyvätkin informaation tuottamisesta markkinoille, jonka perusteella osaamme tehdä tietoisia valintoja erilaisten vaihtoehtojen välillä ja saamme käsityksen niiden laadusta.

EUT:n ratkaisukäytäntö on kuitenkin kehittynyt suuntaan, jossa suojataan näiden edellä mainittujen funktioiden lisäksi myös investointeja. Erityisesti tässä suhteessa huomion ansaitsee L’Oréal v Bellure -tapaus (C-487/07), jonka perusteluihin on antamisensa jälkeen viitattu lukuisissa muissa tapauksissa (mm. C-376/11, C-558/08 ja C-278/08). Kiinnostuitko aiheesta? Jos näin pääsi käymään, niin lue lisää alla olevan linkin kautta Euroopan Unionin tuomioistuimen (EUT) tulkintalinjan kehittymisestä, goodwill-suojan myöntämisen oikeutusperusteista ja lopuksi kerromme miksi goodwill-suojan suoja-alan laajentaminen on ongelmallista (IPRinfo_2_2013/Tulisiko-norkkiminen-kieltaa) ja miten Suomen lainsäädäntöä tulisi tämän aiheen osalta tarkastella.

Erinomaista kesän jatkoa!

SPA Series Part 2: How To Negotiate M&A Deals In Finland?

So it is time for our next section on mergers and acquisitions. Before we start with the question on “parties” of the agreement and definitions and interpretation issues as promised last time, we need to focus on some preliminary considerations. When I started my law studies one of our more-distinguished professors said that “during you career you learn to ask more and more questions on each topic and after law school you should be able to present at least three relevant questions on any legal issue”. On the other hand, Mika mentioned that his old boss and partner, a well-known M&A figure, taught him years back that every M&A deal contains the maximum of three fundamental issues that need to be resolved or addressed. The rest is not that significant. So if you are planning a transaction either as a buyer or a seller – what are the questions you should ask? Well, we naturally cannot offer here the pleasure of enjoying the bliss of a a full law degree, which we’ve had our share of - not only one but also twice at the minimum, but at the minimum we can provide you all with a head start and some insights on the matters you should go through to ensure that your deal will be successful.

First of all, if you are planning to acquire or sell a business in Finland there are a couple of alternative basic structures you should be aware of:

i) an acquisition of the shares in the target company (beware of the liabilities);

ii) an acquisition of all or part of the target company’s business (buy the assets you need); and

iii) a statutory merger or a share exchange (may be a tax neutral structure).

We will discuss below share purchase deal of a non-listed target. It should be noted that the questions are directed solely to that kind of deal structure. Some structuring issues will be mentioned later as well, but let’s go through the questionnaire first to get us started:

• Why are you doing the deal (getting rid of competition, synergies, accessing, specific clients,    brand, IP rights, market access)?
• What are the specific risks that might prohibit or restrict you from reaching the fundamental goals?
• What is the business rationale for planning to sell or planning to pay what you are planning to pay?
• Start with the identification of the parties – potential buyer and sellers. Do these parties exist and do they have any assets or background?
• Need for non-disclosure agreements? One-sided or mutual? At what point can you present one without feeling embarrassed.
• Letter of intent or memorandum of understanding – is this needed? Is there negotiation exclusivity? Note that the need and content depend on whether you are the buyer or the seller and whether you want to “lock” the negotiating position – at all.
• Is the process an auction or negotiation with a specific named party? What does the auction mean – cost-wise and time-wise?
• Practical matters like deadlines, contact details of legal and financial advisors and similar?
• More practical matters like signing rights and proxies? A need for Board of Directors approval? Who has the authority?
• Stock exchange releases – who will handle? A road map is often needed as disclosure will often have to be made without undue delay
• Handling of payments and other closing arrangements – who will handle and who will agree with banks?
• Is there a need to engage also foreign legal and financial advisors? Legalization of documents and similar official requirements? Rule of thumb – advice in the parties’ home jurisdiction and from the location of the collateral is often required.
• Other issues needed to keep the deadlines like rulings from competition law authorities, co-operation procedures, preliminary rulings from tax authorities? How do these affect the closing?
• Planned signing and if needed closing dates?
• Due diligence issues, responsible parties and form of the report (descriptive or finding report)? Is the report intended to be relied upon by parties financing the said transaction?
• Are certain issues excluded from the scope of due diligence? How the data room is formed and what is the materiality threshold? How do you manage the confidentiality issues – who has access and what should be accessed?
• Then identify the target carefully – is it a separate company or a group? This is also important due to the fact that you’ll need to know with whom you can discuss
• You never know enough of the background - so what are the countries where the target operates, what is the operating model (e.g. subsidiary, branch office, distributor or something else) and also what are the most relevant of these all (e.g. in terms of revenue)?
• Ownership structures for all entities? Are there options or convertibles that might change the structure?
• How the transaction is about to be financed, e.g. shares or cash?
• Business sale or share sale? 

• It is important to engage tax advisor in the process early as this structuring is heavily influenced by tax considerations – are shares part of the sellers’ fixed assets and do capital gains benefit from tax exemption? If the deal would be a business transfer, could the seller otherwise minimize taxes e.g. use losses from previous years? Effects on the purchase price?
• Special rights entitling to shares like options, convertible capital loans, transfer restrictions and similar?
• Are there special risks, assets or liabilities that should be excluded from the transaction?

• Need to establish new companies for the purposes of the transaction? Why? Are you planning to merge the acquirer with the target (may be needed due to the “financial assistance” restrictions)?
• Specific key persons? Management considerations? How do you plan to engage them?
• Transitional services after transaction? IT, administration, real estate, for example?
• Other tax e.g. from the purchase price perspective, or future considerations from the buyer’s perspective?
• Purchase price structure, adjustments and earn-outs? How do you fix the mechanism and the numbers for determining these?
• Is the purchase price connected with the refinancing or rearrangement of target’s financing?
• Should there be an escrow arrangement?
• How the deal is financed – cash, debt from banks? Determine which balance of creditor and shareholder control is acceptable to you as a buyer.
• Redemptions, targeted issuances of shares or similar as part of the purchase price? Do you want the seller to hang on to the company- or would it be better to just have a vendor note from the seller (i.e. deferred purchase price with interest)?
• What are the most critical business issues – that we know already?

• Main suppliers and customers?
• Core assets and intellectual property rights?
• Litigations?
• Key persons?
• Corporate law matters – will there be trade name change or other similar changes with the trade register? Board composition of the closing? Assignment of IP rights as a precondition for the closing?
• New employment and director agreements – is there a need to make changes?

• Cooperation procedures (employment laws) if needed?
• What kind of SPA draft is optimal – friendly or aggressive? Internal approval for drafts?
• What kind of representations or warranties should be used as a starting point?
• Limitations of liability? Claim periods? Basket?
• Financial standing of the seller – need to consider parent company guarantee?
• Other specific issues regarding environment, transfer tax, competition law and so forth

So as a summary, any transaction is a process and most of the law firms have already these processes in place like we have ours as well. The rest is pretty much implementation typically without a need to be engaged in difficult theoretical discussions regarding, for example, seller liability under the Contracts Act in situations X, Y or Z. So with this questionnaire we hope that you start asking the right questions and then in the following postings we will see how these issues are covered in the process, as well as in the legal documentation and negotiations, in more detail. 

Already at this stage the most important lesson is that you should identify those most critical issues why the deal is done and what are the factors ensuring the successful case and hold on to those points. The Greek historian Herodotus was not talking about M&A when he said, “Great deeds are usually wrought at great risks.” It is however very much true that in many cases companies are not well prepared for complexities of an M&A risks and we hope that this list could serve at least as a starting point for such preparations – until next time!

SPA Series: How to Negotiate M&A Deals in Finland?

We'll kick off with this posting a new blog series on M&A and how to negotiate M&A deals in practice. This one will be done in collaboration with my good old friend and Oxonian colleague Mika J. Lehtimäki. What we aim to achieve is to provide an overview of all the terms of a typical share purchase agreement, the typical negotiation points and illustrate also some common compromises and tactics. So this is the outlook what is about to follow (our target is to post new material bi-weekly):

1.         PARTIES, DEFINITIONS AND INTERPRETATION
2.         SALE AND PURCHASE OF SHARES
3.         PURCHASE PRICE, EARN-OUTS AND ADJUSTMENTS
4.         COMPLETION        
5.         BUYER'S WARRANTIES
6.         SELLER'S WARRANTIES
7.         LIMITATIONS OF LIABILITY
8.         POST-COMPLETION OBLIGATIONS
9.         CONFIDENTIAL INFORMATION
10.       ASSIGNMENT PROHIBITED
11.       GUARANTEES
12.       CO-OPERATION AND COMPETITION
13.       THIRD PARTY CLAIMS
14.       VARIATION
15.       WAIVER
16.       CUMULATIVE REMEDIES
17.       COUNTERPARTS
18.       EFFECT OF COMPLETION
19.       ENTIRE AGREEMENT
20.       INVALIDITY
21.       THIRD PARTY RIGHTS      
22.       GOVERNING LAW AND DISPUTES
25.       DISCLOSURE LETTER AND SOME WORDS ON OTHER SCHEDULES
26.       SOME ADVICE ON "BOILERPLATE CLAUSES"

Some sections will be divided in subsections as it may be too difficult to fit all information on warranties, for example, to a reasonable size of one blog. Another theme that is divided to several smaller subsections will be purchase price, which is naturally needed to go through different variations from locked-box to earn-outs.

We decided to start the blog to share experiences of seasoned M&A lawyers. Both me, being very active in technology, outsourcing and intellectual property deals and Mika J. Lehtimäki, who is a very well-known figure in banking & finance, have led several domestic and cross-border transactions and during our careers we have learned most tricks and intricacies from practice. There has not been a single book or guide which could assist a young lawyer in his or her journey to the wonderful world of M&A which is an issue we wanted to fix. It is not so long ago (most likely 2001) I was doing my first seed investment to a small technology-based company and I went to the chamber of my tutor just to ask what an earth is a disclosure letter and how should I “qualify warranties”.  The small but invaluable piece of advise I received then was still valid last year when I was leading a large financing round relating to a contemplated green technology or should I say cleantech production facility, or representing a Finnish company in the divestment of their operations abroad. As for Mika, he still remembers his first M&A deal in 1999 negotiating against one of the grand-old-men of Finnish corporate law. Although not a pleasant lesson, something that put him first in the deep end of the world of M&A tactics and trickery.

We will focus in our posts also on the negotiation process as it is one of the most critical issues in any M&A deal. It is young lawyer’s typical problem that one too easily sabotages the deal while experienced negotiator may come up with excellent workarounds that still lead to win-win deal for both parties.

Main target audience of this blog series is those already having experience on M&A and perhaps have participated negotiations already. Legal education is not necessary so we also think that our thoughts could be useful for financial advisors, CFOs and management in general involved in these kinds of cases.

Finally before we start it is important to note that contract language used in this blog is mainly intended to illustrate the point in question so we have not tried to formulate bullet-proof language in that respect. It should be noted that precise drafting is one of the most important issues in particular in cross-border deals where contractual interpretation is not necessarily based on “intention of the parties”.

Any questions and comments are warmly welcome and if you wish to submit particular comments to any specific topic or you have been wondering some point raised in a previous case, let us know and hopefully we are able to provide guidance on those as well.

Should I Use HoldCo or Directly Own my Joint Venture?

I was presented this question some time ago, i.e., when it is beneficial for the owner to use a holding company "as a middle company" in joint venture context. Just to illustrate this idea I drafted a slide on both of these structures in connection with one of my forthcoming M&A lectures and I thought that I could share this with you as well.

Those "circles" on top illustrate owners and their share ownership in the company participating in the JV. Then the key issue is whether the JV partners directly own the target or whether there is a holding company in the middle which then owns the target. Taxation is naturally one crucial driver behind these corporate structures including debt push-down considerations and similar, but from the corporate governance point of view what the main questions for a lawyer or CFO responsible for the planning of this new venture would be?

• As a starting point, one should take into account what is the relevant jurisdiction and what is the maturity of its company and contract law regime?
• How can you generally enforce the agreements, e.g., can you use specific performance?
• Is it possible to limit directors' liability?
• Is 100% foreign ownership even possible under the applicable law?
• Have you considered investment control regulations, authorizations and permits?
• Finally, can a company operating in a target's jurisdiction own foreign HoldCo?

While joint ventures are somewhat more popular nowadays, e.g., as in many cases one needs local partnerships not only to meet local legal requirements but perhaps to establish the very business case in the target's jurisdiction or to secure funding. At the same time, these structures are also becoming much more complex in many fields, e.g., due to convergence. This is also very much true in IP-rich joint venture exercises where after the deal is done the licensing matrix is typically a map full of different arrows from one direction to another with an aim to ensure for all parties their own space or freedom to operate if you want to call it that, and at the same time, providing a commercially rational scope for the JV itself. While IP rights are not the core consideration in many JV exercises, it should also be noted that if there are disagreements between the owners or one of the parties wishes to create an exit, then the discussion often turns to ownership of intellectual assets and their valuation (of which the parties may at that point have very different views).

Hopefully this helps in your JV efforts and until next time!

Tech Transfer Block Exemption - Some Comments

I know that I promised to write about M&A, but it is coming - be patient! I thought that I post this first on the above topic while my M&A blog is still "under construction" as I recently had an opportunity to participated in the panel discussion organised by the Finnish Industrial Property Association and the Finnish Competition Law Association.

Other panelist were top competition law experts in Finland and as I have been doing mainly other things like technology deals, investments and M&A, I must say that I also personally learned a lot and got some new brilliant ideas! Moreover, I must say that I was impressed by these fellow panelists including Mikko Huimala from Castrén & Snellman, Ilkka Leppihalme from Peltonen LMR and professor Petri Kuoppamäki from the University of Helsinki - they are truly in a league of their own!

According to the consultation:

"In the meaning of the EU competition rules, a technology transfer agreement is a licensing agreement where one party (the licensor) authorises another party or parties, the licensee(s), to use its technology (patent, know-how, software license) for the production of goods and services. The rules on how to assess technology transfer agreements are set out in two instruments, the technology transfer block exemption regulation ("TTBE") and accompanying Guidelines. The TTBE exempts certain categories of licensing agreements concluded between companies that have limited market power and that respect certain conditions set out in the TTBE. Such agreements are deemed to have no anticompetitive effects or, if they do, the positive effects outweigh the negative ones. The Guidelines provide guidance on the application of the TTBE as well as on the application of EU competition law to technology transfer agreements that fall outside the safe harbour of the TTBE."

So let's look at the changes from IP lawyer's perspective:

First, exclusive grant-backs (whether to severable or non-severable improvements like in the previous TTBE) are now on the "grey list". This is good issue in particular as the previous competition law-based distinction to severable and non-severable was very confusing in the first place. Remains to be seen what are the practical effects of this as it would seem to be relatively simple task to draft a license grant just a bit differently and get the same end result.

Second, market share thresholds are slightly modified, but as neither IP lawyers nor competition law lawyers, as Professor Kuoppamäki pointed out, review these in real-life licensing situations, these changes are not very relevant in practice. Still more attention should be paid to competitor and non-competitor definition in order to review the right list of clauses from the TTBE.

Third, non-challenge clauses are also now on the grey-list. Difficult issue, especially, if settlement agreements are considered. Also good point was raised in the discussion that this clause may be an issue from the "social contract law" perspective if you think, e.g., a case where an individual inventor who has just licensed his or her patent to a large international company faces with an invalidation procedure, does it sound fair?

Fourth, relationship between TTBE and other block exemptions are also clarified. However, this is still not "bullet-proof" distinction in particular when one needs to consider a distinction between licensing and R&D. In most of the ordinary technology deals in which I have been involved lately, R&D block exemption would seem to be applicable still.

Finally, technology pools and reverse payment settlements I leave outside this blog, but please tell your views on those and I promise to share my opinions.

In conclusion when thinking about Finnish industry in general, I would have hoped for more specific guidance on those contractual measures licensors can use to protect their technology (limitations to own use and R&D are hardcore between competitors and gre-listed between non-competitors). In many cases these agreements are in the grey-zone and I would argue that Finnish entities are typically more often on the licensee-side than licensor- side (some telecom manufacturers excluding) so in addition to market efficiency views typically emphasised by competition lawyers we could also consider freedom to operate view to ensure our domestic incentives to innovate. See more on the below link (unfortunately only in Finnish), and definitely this draft TTBE is worth reading: http://www.jdsupra.com/legalnews/ip-lawyers-practical-comments-on-the-dr-80086/