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!

Regards,

Jan

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!

Jan

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!
Regards,
Jan

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,

                         Jan

Wednesday, 2 April 2014

Invitation to Spring's Top Event on M&A, IP and Corporate Law 15.4.2014

Hi everyone,

I have been very busy during the last few weeks or month actually, and I have slightly scaled down my article activity and blog postings. The situation is improving, however, as a new section of our M&A series is being edited and most likely we will be published next week. There we focus on definitions and key drafting and negotiations points so I think it will definitely be worth reading!

What we have been doing and what has taken our time from social media is that we have had some interesting transactions lately from wide variety of sectors from IT to telecom and finally to forestry. What has been a pleasure to notice is that while many of out previous deals have had a divestment or outsourcing angle (typically involving some IP as opposed to, say, pure HR angle), this spring has brought us also buyer-side deals. So there seem to be more confidence in the markets in this respect so that is a good piece of news. Also our partner Mika has been active doing and planning bond issues and that is of course not all what we have been doing, but we have also arranged a seminar for all of you to enjoy!

More detailed program can be found from here and please note, registration time is ending soon:


What we have had in mind is that we could talk a bit about valuations of IP, what issues investors should focus on if they are investing in IP-driven companies and for banks, can IP really be used as a security? In many cases there is a requirement that "your company should own IP rights but is it really so?". This topic is introduced to us by Erkki Yli-Juuti, a business-driven IP professional behind some of the largest deal in Finland from Nokia, Broadcom, Renesas Mobile and to our information soon SSH. This theme will be followed by Juha Karttunen, a managing director of Sisu Partners and the leading Finnish investment banker who will share his experiences on M&A process leadership. He will guide us through the difficult procedural steps from valuations to targets selection and documentation, "must here" - speech even for all us M&A activists.

Our own lawyer and latest recruit Kiira Lehtonen will provide an update cyber law and data protection matters and where we are with the latest Commission proposals. It might be too early but Shareholders' Rights Directive is coming and if it will be published I will promise that we have it in our agenda!

Hope to see as many of you there as possible and see you then!

Cheers,

            Jan


Tuesday, 25 February 2014

Incorporating Industrial Projects under Finnish Law - Some Basic Considerations

This time I write about projects, as the full range of industrial investments and R&D projects have been been my passion for several years now. For a lawyer, life could not get much more interesting than sitting on the driver's seat of a windmill project (check out Finnish windmill project players here), BtL facility project or similar cleantech initiative (check out cleantech investment opportunities and events  here) where intellectual property, patents and know-how in particular, play an important role. Perhaps it is not only that but the fact that you face a variety of difficult legal questions and risks at once and try to navigate through these unchartered waters with a group of investors, technology vendors, customers and owners each typically having their own different business objectives and agenda. We have been very involved with these assignments and had them in mind while this post was written. Yet, the rules outlined below can apply to any other R&D project that needs to be separated from the parent. 

There could be wide variety of reasons behind incorporating a project. There might be, e.g., the the establishment of a joint venture with a business partner, or a company might seek funding and contemplated funding structures, such as private equity, necessitate certain legal form. The incorporation might also be prudent due to the mere fact that one wishes to separate new ventures and risky projects as their own legal entities and this way they protect their core business from additional risk exposure. Whatever the driver is, when this incorporation is decided, we hear the following question presented quite often: how do I actually incorporate our project as a separate legal entity with a view of a forthcoming investment round or transaction? If this sounds familiar, let me show some viewpoints to the issue.

There are several issues influencing the decision but, naturally, tax neutrality is one of the starting points as one does not want to end up paying taxes unless mandatory. It s not always easy to achieve tax neutrality in IP driven R&D projects. Typically there is a requirement that you have to have a viable business entity. Another element is that in many cases it is difficult to say that the project has a positive value as the project might consist of a mere Tekes (public funding body, see more here) loan coupled with some patents and personnel. The latter can be solved with additional capital contribution.

Also it should be noted that there is another point in tax neutrality that is not related so much to incorporation per se but more precisely to a subsequent sale or investment round. So in some cases, if you already know how the following transaction will be done, some structures are preferable over others. As an example, if you wish to achieve tax neutrality for your share deal which is planned to take place soon after incorporation, you must take into account that in some incorporation forms it is required for tax neutrality, among other matters, that you must own the shares for a period of twelve months. Here you might wish to consider partial demerger in stead. We prepared a short summary of the structuring points that would be relevant that would guide you forward in your incorporation exercise and hopefully this helps. We have listed here incorporation types, how target business may be selected, with a view towards subsequent transaction what are the requirements for tax neutrality (capital gain) and finally ownership structure considerations. 

The key guide however is that you need foresight for your structuring efforts, you need to have a clear target in mind what you want to achieve and then build the legal structure accordingly. One of the most common structuring pitfalls is that one incorporates a project too late only before an imminent financing round and then you might end up into long discussions on taxation risks and possibly you also end up having innovative investment structures that are not always the easiest ones to sell forward. Good luck for your structuring considerations!

At the same time I want to mention that TRUST arranges a spring kick-off event on 15th April 2014 at Bank starting at 8.30 a.m. Once again we have an interesting agenda with varying topics from M&A, corporate finance and IP & technology. More information to follow and request and invitation by sending us e-mail. Hope to see many of you there!

Regards,

               Jan


Friday, 17 January 2014

SPA Series Part 4: How To Negotiate M&A Deals In Finland?

So now (someone might say finally) it is time to return to our SPA blog series. It has been a bit busy start of the year and it seems that at least the number of divestments is not decreasing any time soon (see more on out practise from TRUST's website by clicking here or here). Well, I thought that I would do this blog before I start my Christmas vacation but I was too busy, my apologies! So let’s go straight to the topic and outline some of the first clauses of the agreement. But, before that, some risk allocation issues and core terms from that perspective.

If we start with the definition of the parties, the previously noted point on differences between the business transfer and share transaction should be noted. In the former, the seller is the company while, in the latter, the seller is the owner of the shares. Typically these SPA agreements start with the following wording or something similar:

“THIS SHARE PURCHASE AGREEMENT is entered into by and between

[Name of Purchaser], [(Business Identity Code [])], [address of Purchaser] (Purchaser), and [Name of Seller], [(Business Identity Code [])], [address of Seller] (Seller).

RECITALS 

WHEREAS, the Seller owns [all of the][or:___] issued and outstanding shares (Shares) of [] (Business Identity Code []), [address] (Company); and

WHEREAS, the Purchaser is willing to acquire from the Seller and the Seller is willing to sell to the Purchaser the Shares subject to the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants and conditions set forth in this Agreement, the parties hereto agree as follows:”

As said earlier, a share purchase agreement is, like any other transaction agreement, an agreement on the allocation of risks and liabilities concerning the object of the deal. In other words, the agreement tries to find a proper balance between the purchase price paid on the one hand and the risks and liabilities assumed by the purchaser on the other hand. Of course, there is a correlation: if the purchase price is higher, fewer risks and liabilities are assumed by the purchaser and the other way around.

The allocation of risk and the negotiating tactics of the parties are influenced by several factors and it is always a point that needs experience—how to create a proper strategy to exit your deal especially with a view on optimising your business targets, e.g., deal value. Typically, the points one should consider include:

(i) negotiating position;

(ii) aims of the parties;

(iii) time constraints;

(iv) risk tolerance; and

(iv) understanding of the core business.

During the transaction process, information concerning the object of the transaction and the risks pertaining thereto and liabilities becomes available to the purchaser, most frequently through the due diligence review or through a separate disclosure by the seller.

The purchaser cannot usually refer to a defect that he was aware of before entering into the transaction. Therefore, if the purchaser is, through due diligence or otherwise, aware of a particular problem, but chooses not to share it with the seller, the purchaser will run the risk of being unable to claim damages suffered as a result of a breach by the seller.

In order to achieve a proper balance between the purchase price and the risk and liabilities assumed by the purchaser, findings based on the due diligence review (read more on this due diligence from here) or disclosure by the seller can be addressed in several ways, depending on the severity and content of the finding. As a starting point, the alternatives for addressing the findings include:

(i) restructuring and redefining the target;

(iii) adjusting the purchase price or the related price mechanism;

(iv) conditions precedent;

(v) representations and warranties;

(vi) specific indemnities; and

(vii) execution of transitional and other related agreements.

If a finding cannot be readily addressed through any of the above measures, or if the necessary measures are not feasible, e.g., for tax reasons, the finding may be a deal breaker, resulting in the transaction becoming too unattractive to pursue. Typically there are several ways to deal with these findings and very often issues and even significant findings can be handled in different ways to reduce or eliminate the risks. One example is an online gaming company established by two engineers at the late 90s. They started coding an engine for an online game and later on went to establish a company. We were performing a due diligence investigation in connection with a financing round where we represented a foreign venture capital fund. Although everything else was pretty much in order, the company was at the time of financing round already quite large with dozens of employees, these founders had never actually assigned the intellectual property rights of the engine to the company. Naturally, it was defined as a condition precedent for the deal and eventually these persons obviously agreed to assign these rights. However, should the situation be different, if, for example, we could not have received this signing for the assignment documentation, we would have been faced with a deal breaker. This was the case in connection with a biotech firm and its gene bank, but that is another story.

The most difficult findings to deal with are the first two above. This is because they go to the very heart of the target and might change the whole contemplated deal structure. As an example, a share deal’s due diligence review might reveal very high litigation risk or potential environmental liabilities related to a certain property. This might mean that the purchaser is only interested if the structure is changed to an asset deal which makes it possible for the purchaser to exclude from the scope of the transaction any liabilities relating to the litigation or the contaminated property.

An important point to note is that a seller often wants to make extensive disclosures in order to limit or avoid any liabilities under the agreement, in particular under the representations and warranties or disclosure letter. This is a point to which we will return in later postings. A purchaser should normally approach such disclosures with caution and should not accept them without considering their full implications, particularly in light of the findings in the due diligence review. These are issues one must always go through with people who have the best visibility to the field of business and target.

As a rule of thumb, a purchaser should only accept disclosures that are fairly made and sufficiently exact in their scope for the purchaser to be able to fully appreciate all their implications and decide on appropriate action. Also in some cases, the purchaser may want to disclose to the seller certain intentions relating to the special use of the object of the transaction. The purpose of such disclosure is to broaden the seller’s liability.

Some points on the above recitals and object of the transaction clauses are probably needed as well. The recitals convey background information to the transaction. Even though the recitals describe the intentions of the parties, the recitals should be straightforward and simple. In particular, a recital should not state a purpose that is broader than what the agreement seeks to accomplish. Begin each recital with “WHEREAS,”. The recitals constitute a list; end each recital with a semicolon and the second to last recital with “; and”. This is the “linguistically correct” way to do these, or at least so I was thought. Recitals may also have an important role to play if there is a complex transaction,  because then it should give an overview of the whole deal and all related agreements so that a third party who has not been involved in the deal would easily get an understanding of the overall picture. This also affects competition law analysis, especially as IP-intensive deals, for example, are typically connected with several IPLAs (intellectual property assignment agreements) or IPAAs (intellectual proper assignment agreements) going from the purchaser to the seller and the other way around. If you are interested in IP issues, a good starting point might be IP handbook which also contains some reference agreement models (available from www.iphandbook.org).

The object section identifies the object of the transaction. The object of the transaction should be clearly and unambiguously defined so nothing specific about that. Typically, template recitals assume that all issued and outstanding shares of the target company are the object of the transaction. If not, the recital and definition of “Shares” should be amended accordingly.

So next we continue with definitions, but before that I want to wish to you a splendid year 2014!

Cheers,

               Jan