(Second Edition)

Kenneth L. Port,  Jay Dratler, Jr.,  Faye M. Hammersley, Esq.,  Terence P. McElwee,
Charles R. McManis, and Barbara A. Wrigley

On-Line Problem Supplement
Copyright © 2005   Carolina Academic Press.   For permission, see CMI.

Chapter 3

Problem 3:  Guiding Contair Through an Acquisition

Contair is conducting due diligence for a potential acquisition of R. James & Co., a software consulting company.  R. James has expertise in creating software for other high-end vehicle manufacturers such as voice activation for some audio, phone, and climate functions, and cruise control that is designed to maintain a predetermined following distance from traffic ahead.  Contair would like to bring this kind of software design "in-house" to cut costs and eliminate the competitor's ability to access the technology.

Review of several of R. James' prior contracts reveals that R. James has often agreed to assign all intellectual property developed in performance of the contract to its customers.  For example, in one contract between R. James and one of Contair's competitors, Veogri Autos, R. James has agreed to assign all intellectual property "created, conceived, or prepared by [R. James] in the performance of services" to Veogri.  In addition, R. James has warranted that all R. James' deliverables under the contract are non-infringing and indemnified Veogri for all intellectual property infringement claims arising from those deliverables.

Advise the president of Contair about the intellectual property risks associated with the acquisition of R. James & Co.  What methods would you suggest for assessing the level of risk associated with the IP ownership clause and the IP indemnity clause?  How would you suggest that Contair mitigate those risks both through continued due-diligence investigation and through amendments to the proposed acquisition agreement?

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