Monday, 28 July 2014

Brian JM Quinn, Albert Choi and advise on earnouts and purchase price adjustments

Dear all,

I though that I this time write a few words about blogger Brian JM Quinn who might be better known as the "M&A professor". He has a blog on M&A related issues and in this case M&A issues only, while we focus also on IP and technology issues as you have possibly seen so slightly narrower focus. 

Well few words about Brian, he works at Boston College Law School in 2008. He teaches Corporations, Corporations Lab, Mergers & Acquisitions, Mergers & Acquisitions Lab, as well as Deals: The Economic Structure of Transactions. He constantly writes about M&A related themes and if you are not following him yet, it might be worth considering. In his latest blog he is referring to Albert Choi's recent study on facilitation of Mergers and Acquisitions with Earnouts and Purchase Price Adjustments (June 30, 2014) which was published in Virginia Law and Economics Research Papers (Available at SSRN: or

Choi's paper examines how post-closing contingent payment (PCP) mechanisms (such as earnouts and purchase price adjustments) can facilitate mergers and acquisitions transactions. By relying on verifiable information that is obtained after closing, PCPs can mitigate the problems of asymmetric information over valuation and, in contrast to the conventional understanding, this benefit applies to both earnouts and purchase price adjustments. When both the acquirer and the target are aware that there is a positive (but uncertain) surplus from the transaction, PCPs function more as an imperfect verification, rather than a signaling, mechanism and a pooling equilibrium is possible, in which all parties adopt a PCP. 

According to the summary: "When the parties are uncertain as to whether a positive surplus exists, on the other hand, PCPs function as a separating device, in which the seller with a positive surplus successfully signals its valuation with a PCP. The paper also addresses the problems of post-closing incentives to maximize (or minimize) the PCP payments. When such a moral hazard is a concern, the paper shows that (1) the PCPs will be structured so as to minimize the deadweight loss and a separating equilibrium is more likely to result; and (2) when the deadweight loss is sufficiently large, the parties will forego using a PCP mechanism altogether."

I strongly recomment you to follow M&A Professor and also read Choi's paper and personally I found this argumentation very convincing. Let me know if you disagree!



Friday, 4 July 2014

TRUST on IP Litigation - Most Interesting IP Cases from Spring 2014

Dear All,

I am almost on vacation, but before that I though that I write a post to wrap up some interesting IP cases from this spring. I have tried to outline in the update both practical advise and some theory from IP and technology litigations which I think might be relevant for companies operating in the Nordic region. This is not an exhaustive list of cases by any means, but just some cases which caught my attention and containing all my favourite field from IT to cleantech or energy and further to pharmaceutics.

Otherwise, we have had a splendid spring at TRUST so far. I have earlier said that our focus at TRUST. is actually more on the transactional side, which is partly true, but now when we have done IT disputes, corporate disputes and now we have two patent litigations in the pipeline commencing possibly next autumn, we must reconsider whether this was a very accurate statement in the first place. As a famous Finnish politician said, “I think I was wrong but then it turned out to be an error”. At the end of the day, these are the core sectors that we are passionate about—and litigations are the best possible “legal duels” left in our modern society and so this time we focus slightly more on litigations and disputes.

So as a summary, Hi hotel –case is about copyrights and jurisdictional matters, Svensson – case is about linking, Blomqvist vs Rolex focuses on brand protection and counterfeiting in online environment, followed by two recent patent-related interim injunction cases involving Neste vs UPM and Ranbaxy vs Pfizer, and finally we talk about data protection in light of Google decision and “the right to be forgotten”. We also have a practical drafting sector and this time we talk about one relevant theme in IT agreements which I think all customers should consider in their procurement policies and of which we have heavily negotiated this spring in connection with some business-critical ERP projects. Hope you enjoy reading this!

Pleasant and relaxing summer vacation to everyone!



Saturday, 14 June 2014

The Asphalt Cartel Decision and the Transfer of Liabilities in Business Purchase Situations

Dear All,

Our associate Kiira Lehtonen has reviewed the latest asphalt cartel case (decision L 09/49467 of the Helsinki District Court on 28 November 2013, “Decision”) and wrote an analysis of this remarkable case focusing on the aspect of transfer of liabilities in business transfers. This is perhaps slightly ignored aspect of the decision but definitely a point of which all M&A lawyers such as such should be aware of. The main theses of Kiira in summary:

"While the reasoning of the Helsinki District Court behind the transfer of liabilities for damages between companies may even be well understood and accepted, it cannot be left unnoticed that Finnish law does not in itself recognize the in damages cases, but only in penalty payment cases, which, as stated above, fundamentally differ from damages cases as they are public in nature. It is in any event highly probable, if not certain, that in addition to many other parts of the Decision, this question will be discussed in further detail during the appeal proceedings. In the meanwhile, however, companies should not completely ignore the possibility of transfer of liabilities for damages in connection with transfers of businesses, as the situation still remains uncertain. Taking this possibility into account at least on some level might help to avoid unpleasant surprises in the future."

The full text of this legal update is available from: here.

Pleasant reading moments!


Tuesday, 10 June 2014

Will interim injunctions become unpopular in Finnish pharmaceutical patent litigations?

Dear all,

Splendid summer for everyone! While we already have enjoyed this beautiful whether full of sunshine, we still need to work hard for a couple of weeks before the well-earned holidays. This year we are heading to Mallorca with a big group of kids, so lots of fun ahead!
This time I would like to write about patent litigations and interim injunctions as a result of a recent news. Pfizer was ordered by a Finnish court to pay 16.5 MEUR plus 270.000 EUR as a compensation for legal fees to Ranbaxy, an Indian generic manufacturer, which was later acquired by Sun Pharma making the conglomerate world’s fifth largest specialty generic pharma company. But to beging with, if you are planning an interim injunction in Finland, let me first guide you through the process very briefly and then we talk about this case.
What do you need to know about Finnish interim injunctions?
In Finland preliminary injunctions may be granted in patent cases either by virtue of the Code for Judicial Procedure or the Patent Act, both before and during the main proceedings. Preliminary injunctions may also be granted provisionally on an ex parte basis. An interim injunction is a summary proceeding and commences by filing of an application to the Market Court (previously this was the district court of Helsinki). The issue is handled urgently and a preliminary injunction may be granted very quickly (typically from the minimum of two days to one month).
The following requirements must be fulfilled in order to grant a preliminary injunction and generally: i) right holder shall establish that he/she has a right enforceable against the counterparty. The evaluation of the fulfillment of the claim requirement is based on probability assessment; ii) Danger requirement: it is required that the counterparty by deed, action, or negligence, or in some other manner, hinders or undermines the realization of the right holder’s right or decreases essentially the value or significance of said right. Actual existence of danger is generally not required to be proven, a claim thereof usually suffices; and iii) Comparison of interest / undue inconvenience: the court considers the interests of both parties and assesses whether the defendant would suffer undue inconvenience in comparison to the benefit to be secured interim injunction.
Typical evidence in this interim injunction phase includes approximately the same material as in the main proceeding with the exception of oral evidence that is provided later phases. Additional documentation includes the official patent documentation, cease-and-desist letters, if any, expert evidence, technical drawings and similar, financial analysis on the harm to the patent holder (e.g., in the form of sales statistics or similar), and for example, supporting foreign judgements, if available.
No damages are awarded in the preliminary injunction phase. The cost of litigation in this interim injunction phase generally varies between 10,000 and 15,000 €. Interim injunction is a summary proceeding and commences by filing of an the application to the Market Court.
What happened in Pfizer – Ranbaxy?
We have ordered the litigation files and decision of the district court, but we have not received those yet. Therefore, our comments here are based on facts which have been written in the press (Helsingin Sanomat). Helsingin Sanomat mentions that the district court of Helsinki held that Pfizer unnecessarily sought for interim injunction and caused 25M loss to Ranbaxy’s sales, 47 percent of which were the amount of profit. The district court noted that the question was about creation of intentional damage to the counterparty which may result in significant economical losses. Pfizer had admitted during the trial that the interim injunction was unnecessary, but Pfizer held that there was no connection of causality between the events and the damage.
Conclusions and considerations?
I remember having a discussion with the late Justice Laddie once about interim injunctions and patent litigations in general, and he said that he always knew the result of a patent litigation before he filed the case and personally I have always tried to follow the same principle. This so-called "avoiding courtrooms strategy" may in many cases be a bad thing for the invoicing of law firms (if not to anyone else), but at least we have had enough work so far believing that this is the right way forward. All of the facts are not disclosed here so we will go these through in detail after we have received all the files, but in any case this case clearly creates a need for IP litigators such as us to carefully reconsider whether there are valid grounds for filing interim injunction applications and, if such grounds turn out to be non-existing, there may be consequences like in this case. Naturally if a generic company is under no pressure to pay patent and R&D costs, the profit margin is very high as indicated also in this decision. Moreover, we will discuss some open questions further in our later posts, e.g., Finnish pharmaceutical patents in general and analogical method claims which were used prior to 1995, the role of courts in case of "unnecessary interim injunctions" and the concept of "unnecessary" itself is fascinating. So we return to this shortly, but in the meantime I hope relaxing summer break for everyone!

Tuesday, 6 May 2014

Keväisiä terveisiä Trustista, uusia rankingeja ja johdon kannustinjärjestelmien verotuksesta

Yrityskauppablogeissa on ollut taas suvantovaihe, kun olemme olleet kädet täynnä työtä juuri yrityskauppojen, mutta myös osakassopimuksien ja IT-projektien ihmeellisessä maailmassa. Tässä välissä olen tosin pyrkinyt aloittamaan (lue: taas) kevään juoksukauden, mutta tähän mennessä kärsin vielä uuden kauden aloittamisen mukanaan tuomasta "korkeasta aloituskynnyksestä". Jotta pääsen taas blogin kirjoittamisessakin vauhtiin pikku hiljaa samoin kuin juoksemisessa, ajattelin tällä kertaa puhua verotuksesta ja poikkeuksellisesti myös kotimaisella kielellä. 

Sen verran täytyy mainita vielä muista enemmän toimistoomme liittyvistä asioista, että hienona lisäyksenä aiempiin saavutuksiimme oli Legal 500 - julkaisussa kaikkien kompetenssialueidemme listaaminen ensimmäistä kertaa. Erityisesti olen otettu myös henkilökohtaisesti nostamisestani TMT-sektorilla "leading individuals" -kategoriaan ja haluan samalla käyttää tilaisuutta hyväkseni sekä kiittää kaikkia yhteistyökumppaneitamme ja asiakkaitamme. Tarkemmin aiheesta löydät täältä: Legal 500

Mutta nyt itse asiaan: ajankohtaisessa ratkaisussa KHO 2014:66 käsiteltiin johdon kannustinjärjestelmiä ja niihin liittyen väliyhtiöiden käyttöä. Kokonaisuudessaan ratkaisu löytyy linkin takaa, mutta faktoista lyhyesti seuraavaa:  

"N oli eräiden muiden A Oyj:n johtoon kuuluvien henkilöiden kanssa perustanut B Oy:n, jonka koko osakekannan he omistivat. B Oy oli hankkinut A Oyj:n osakkeita, joiden hankinta oli rahoitettu noin yhden viidesosan osuudelta B Oy:n osakepääomalla ja muutoin sen A Oyj:ltä näiden osakkeiden hankintaa varten saamalla lainalla. Lainan vakuutena olivat sillä hankitut A Oyj:n osakkeet ja lainan ehdot sisälsivät muun muassa mahdollisuuden lisätä lainan korko sen pääomaan mikäli B Oy ei pystynyt maksamaan korkoa sekä mahdollisuuden lykätä lainan takaisinmaksua, mikäli järjestelyn purkamista lykätään osakassopimuksen perusteella. Osakassopimuksen osapuolina olivat B Oy:n osakkeenomistajat ja A Oyj. Osakassopimuksen mukaan B Oy:llä ei ollut muuta toimintaa kuin A Oyj:n osakkeiden omistaminen B Oy:n osakkeenomistajien puolesta."

Väliyhtiöiden käytön tarkoituksena on ollut luoda kollektiivinen ja pitkäaikainen sitouttamisvaikutus sekä yhteinen taloudellinen kannustin emon strategisten tavoitteiden saavuttamiseen. Väliyhtiöissä on perustamisen yhteydessä osakkeenomistajilta edellytetty merkittävää omaehtoista rahapanosta. Ajatuksena tässä on ollut, että mallissa luodaan merkittävää kilpailuetua verrattuna esimerkiksi pörssiyhtiöiden perinteisiin osakepalkkio- tai optiojärjestelyihin, joissa kohdehenkilöilta ei tyypillisesti edellytetä pääomapanosta ja verokustannukset kompensoidaan osana järjestelyä. 

Korkein hallinto-oikeus katsoi, että kysymyksessä olevaa järjestelyä, kun otettiin huomioon järjestely kokonaisuutena, oli arvioitava veronkiertosäännösten perusteella. Tämä merkitsi sitä, että järjestelystä saamaa tuloa voitiin tietyin rajoituksin pitää työsuhteen perusteella saatuna ansiotulona, joka luonnollisesti vie yhden merkittävän edun pois tämän järjestelyn käytöstä. 

Vaikken verojuristi pohjimmiltani olekaan, tulemme Trustissa jatkossa vielä tarkemmin analysoimaan tähän liittyviä strukturointikysymyksiä, joten voinen varata oikeuden palata asiaan myöhemmissä blogeissa. Sinänsä tätä nyt po. ratkaisua vastaava harjoitus on ainakin allekirjoittaneelle ollut jo pelkästään yhtiöoikeuden ja osakassopimuskysymysten yhteensovittamisen kannalta yksi tähän mennessä mielenkiintoisimmista. Keskustelu aiheen tiimoilta siis jatkunee!

Kevään jatkoja,