The Art of Cross Pond Negotiations: Finding a Foreign Partne
By Raymond S. Fersko and Jesse A. Lynn
Abstract: This article highlights some of the legal and business issues facing US biotechnology firms wishing to establish a presence in Europe. Portions of the discussion grew out of a workshop presented at the BIO '98 International Biotechnology Meeting & Exhibition, held in New York in June 1998. BIO '98 was sponsored by the Biotechnology Industry Organization and the New York Biotechnology Association. Mr. Fersko, a Member of the Host Committee of BIO '98, moderated the workshop.
Introduction
Many US biotechnology firms have found that seeking access to overseas markets and technology through transactions with foreign partners can be rewarding. There is often undeveloped innovation that can be developed more rapidly in the context of a US structure. However, along with the synergies that can be realized through such alliances, come a myriad of potential problems, some of which are unique to transnational relationships.
This article seeks to illustrate some of these problems, with a focus on matters that are usually of importance in relationships between US biotechnology firms and their counterparts in the European Union (EU). However, many of the more basic issues are fundamental to transactions occurring in or out of the EU.
The first topic discussed is due diligence, an apt starting place as this area is where such transactions often begin (and sometimes end). The next subject treated is the form that the transnational venture will take, a decision that will define the relationship between the parties. The differing antitrust laws of the US and the EU are then considered, as this subject will often be the most complex regulatory issue to face the parties to such a transaction. The area of dispute resolution, a topic that, if not addressed adequately from the outset, can be a source of friction between the parties should a dispute arise, is covered next. Finally, as an example of one of the uniquely international problems attendant to such transactions, there is a brief discussion of currency risk.
Due diligence
The due diligence investigation which must be conducted by a US firm considering a transaction with a foreign partner will probably resemble in most respects that which would be made in a domestic deal and which we recommend to our European clients engaged solely in European transactions. Following are some of the major issues that the partners would want to consider in their review.
Since intellectual property will often be the most valuable asset to a biotechnology operation, the US firm will initially want to satisfy itself that its foreign partner has clear title to all intellectual property which the US firm considers vital to the operation. In addition, the US firm will want to verify that all representations made by its foreign partner as to the extent of its intellectual property rights (eg exclusivity of licensing arrangements, scope and duration of patent protection) are accurate.
In addition to conducting a thorough review of the intellectual property rights of its foreign partner, the US firm will also want to familiarize itself with particular regulatory constraints which may be obligatory in the foreign partner's country as well as local law respecting employer/employee relationships in general and with specific reference to protection of inventors. Similarly, the US firm would want to familiarize itself with both the market in which the foreign company operates and with the other participants in this market. The US firm should discern whether any of these other market participants either have competing claims to the technology used by the foreign partner or are challenging the validity of the patents covering such technology. Similarly, the US firm should enquire as to whether its foreign partner has had trouble with third parties either infringing on its patents or making claims of infringement against the foreign partner. Finally, the US firm would want to review any other contracts documenting relationships between the foreign partner and other parties which may have claims against the foreign partner as to ownership of its technology, including employment agreements and research and development agreements.
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