Last Updated: March 14, 2023

Reps and Warranties - An Essential Part of an Asset Acquisition Agreement

What Are Reps and Warranties?

In M&A transactions, "reps and warranties" refer to representations and warranties made by the seller of the business (often referred to as the "target" of the acquisition) regarding the state and condition of the business being sold.

These representations and warranties provide a basis to hold the buyer accountable regarding essential information regarding the condition of the business being sold.

In many transactions, the buyer will know what the true and correct responses to the reps and warranties should be. In such cases, the buyer will have conducted its own due diligence before submitting reps and warranties to the seller. The buyer's purpose with this tactic is to see if the seller is being completely truthful with responses to the reps and warranties.

Regardless of whether the buyer knows what the responses should be, another purpose of the tactic is to "smoke out" unknown issues before submitting the reps and warranties.

How is the Seller Held Accountable With Reps and Warranties?

If any of the representations and warranties made by the seller are untrue, the buyer may have legal recourse to seek damages or terminate the transaction. Therefore, reps and warranties play a critical role in M&A transactions, as they help to ensure that the buyer is making an informed decision when acquiring a business.

M&A Legal Concerns Regarding Intellectual Property and Data Rights

Buyer Legal Concerns

For acquiring companies (buyers), intellectual property (IP) and data rights are critical assets that can impact the value and success of the potential acquisition. Some primary concerns of acquiring companies related to intellectual property and data rights in potential acquisitions are:

    *  Ownership and licensing: The acquiring company may be concerned about the ownership of intellectual property and data rights related to the target company's business. They may want to ensure the target company has the necessary ownership rights or licenses to use the IP and data in their business operations.

    *  Value and potential for monetization: The acquiring company may be concerned about the value and potential for monetization of the target company's intellectual property and data assets. They may want to ensure that the IP and data assets have a strategic fit with their own business and can generate revenue or other value.

    *  Integration: The acquiring company may be concerned about the integration of the target company's intellectual property and data rights with its own business operations. They may want to ensure that the integration process is seamless and efficient and there are no disruptions to their business operations.

    *  Protection: The acquiring company may be concerned about the protection of the target company's intellectual property and data rights. They may want to ensure that the necessary measures are in place to protect the IP and data assets from unauthorized access or use.

    *  Compliance: The acquiring company may be concerned about compliance with relevant laws and regulations related to intellectual property and data. They may want to ensure that the target company has complied with all relevant laws and regulations related to their IP and data rights.

    *  Risks and liabilities: The acquiring company may be concerned about the risks and liabilities associated with the target company's intellectual property and data rights. They may want to ensure that there are no pending legal disputes or potential liabilities related to the IP and data assets.

Seller Legal Concerns

For target companies (sellers), intellectual property (IP) and data rights are critical assets that can impact the value of their business and their future operations after the acquisition. Some primary concerns of target companies related to intellectual property and data rights in potential acquisitions are:

    *  Valuation: The target company may be concerned about the valuation of their intellectual property and data assets. They may want to ensure that the acquiring company recognizes the true value of their IP and data assets and is willing to pay a fair price for them.

    *  Ownership and licensing: The target company may be concerned about the ownership of their intellectual property and data rights. They may want to ensure that their ownership rights are maintained or that they have the necessary licenses to continue using the IP and data after the acquisition.

    *  Protection: The target company may be concerned about the protection of their intellectual property and data rights. They may want to ensure that the acquiring company has adequate measures in place to protect their IP and data from unauthorized access or use.

    *  Infringement: The target company may be concerned about the potential infringement of their intellectual property and data rights. They may want to ensure that the acquiring company has not infringed on any of their IP or data rights before the acquisition.

    *  Confidentiality: The target company may be concerned about the confidentiality of their intellectual property and data. They may want to ensure that their confidential information is protected and not disclosed to unauthorized parties during the acquisition process.

    *  Integration: The target company may be concerned about the integration of their intellectual property and data rights with the acquiring company's business. They may want to ensure that their IP and data rights are integrated seamlessly into the acquiring company's business operations without any disruptions.

    *  Future use: The target company may be concerned about the future use of their intellectual property and data rights after the acquisition. They may want to ensure that the acquiring company will continue to use their IP and data assets in a manner that is consistent with their values and mission.

Reps and Warranties Examples

(Note: the following are not complete lists.)

Reps and Warranties Examples: Intellectual Property

    *  The Seller, the operation of the Business, and the Company-Owned Intellectual Property have not interfered with, infringed upon, misappropriated, diluted, or violated and are not interfering with, infringing upon, misappropriating, diluting or violating the Intellectual Property rights of any other Person.

    *  Seller has not received any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, dilution, or violation (including any claim that Seller must license or refrain from using any Intellectual Property in connection with the operation of the Business or Company Intellectual Property).

    *  Neither the Seller nor the Company Intellectual Property are subject to any outstanding Order or ruling, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or, to Seller's Knowledge, is threatened, which challenges the legality, validity, enforceability, registrability, use, or ownership of the Company Intellectual Property or asserts that Seller is infringing, misappropriating, diluting or violating the Intellectual Property right of any Person, and no valid basis exists for any such claim.

    *  To Seller's Knowledge, no Person has interfered with, infringed upon, misappropriated, diluted or violated any Company Intellectual Property in any respect.

    *  Seller exclusively owns all right, title, and interest in and to the Company-Owned Intellectual Property, free and clear of all Liens, licenses, or other restrictions, and has sufficient rights to use all other Company Intellectual Property as necessary for the operation of the Business as currently conducted. The Company-Owned Intellectual Property and Seller's rights thereto are valid, enforceable, and subsisting and are not subject to any Action. The Company Intellectual Property constitutes all of the Intellectual Property necessary for the operation of the Business as currently conducted.

Reps and Warranties Examples: Data Rights

    *  Seller represents that: (i) Personal Information and Business Data owned or controlled by Seller or Processed by the Business Systems may lawfully be transferred in a merger, acquisition, reorganization, or sale of assets; (ii) Personal Information and Business Data may lawfully be transferred within the United States for Processing.

    *  Seller's use of Personal Information and Business Data has complied at all times with (x) all of the privacy policies of Seller applicable at the point in time which the Personal Information or Business Data was collected or maintained by Seller (the “Privacy Policies”); (y) all Information Privacy or Security Laws and reasonable and appropriate industry standards; and (z) all contractual commitments made by Seller or consents or authorizations received by Seller that are applicable to Personal Information (each, a “Company Data Agreement”).

    *  Seller has adopted and maintained Privacy  Policies as required under applicable Information Privacy or Security Laws.

    *  Neither the execution, delivery, or performance of this Agreement or any of the other agreements referred to in this Agreement nor the consummation of any of the transactions contemplated hereby, including any direct or indirect transfer of Personal Information or Business Data resulting from such transactions, will result in any violation of Seller's Privacy Policies, Information Privacy or Security Laws, or Company Data Agreements as such currently exist or as existed at any time during which any of such Personal Information was collected or obtained.

  *  There have been no security breaches relating to, or violations of any Company Data Agreement regarding, or any unauthorized access of, any Personal Information or Business Data by Seller.

More Information: Privacy & Data Rights

How I can Help You

  1.  I help owners of M&A sellers position their online businesses for acquisition by reviewing the expected M&A reps and warranties and by preparing them in advance of an acquisition opportunity.

  2.  I help owners of M&A sellers navigate complex M&A issues by guiding them from the receipt of the Asset Acquisition Agreement from the buyer all the way to negotiating a successful close of the acquisition.

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My Background

• Juris Doctor Degree, Wake Forest University School of Law
• Adjunct Professor of Law, Wake Forest University School of Law (20 years)
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