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Michael Ladra is an intellectual property litigator, but he’s spending a lot of time these days working on mergers and acquisitions deals. Ladra, a partner at Wilson Sonsini Goodrich & Rosati, is now a regular at the deal table as companies contemplate whether litigation will result from an M&A transaction. “They’re now more sensitive to the fact they may be buying an expensive IP lawsuit,” he says. Technology companies facing flat sales growth are increasingly using their patent portfolios to build market share by threatening competitors with costly legal fights. So in addition to drafting the financial details and dividing up the IP — a task typically left to corporate and licensing specialists — deal teams have to weigh future legal risks and sometimes identify who’s most likely to sue. That means IP litigators suddenly have a place at the table. Firms like Skadden, Arps, Slate, Meagher & Flom and Davis Polk & Wardwell have hired IP specialists to pitch in on corporate deals even though it means somewhat new territory for the litigators. After all, they are used to discussing risks with their clients, but not with the same time constraints or with the same degree of secrecy as corporate lawyers. The stakes are incredibly high. Consider Sonicblue Inc., which bought ReplayTV Inc. in August 2001. Within three months of the acquisition, Sonicblue was sued by 28 entertainment companies and three major television networks. The largest case, Paramount Pictures Corp. et al v. ReplayTV Inc. and Sonicblue Inc., is pending in a Los Angeles federal court and centers on key features of ReplayTV’s technology. Ladra, who regularly advises companies on how to protect their IP assets, says he devotes about a quarter of his time these days to helping his corporate partners on M&A deals. Part of his work involves figuring out how the pertinent technology may evolve and how it might be used in the marketplace in the future. “You’re generally reading tea leaves, and you’re generally constrained,” he says. The new work on mergers and acquisitions has also exposed IP litigators to new dilemmas when it comes to client confidentiality and responsibility. Claude Stern, a Fenwick & West litigation partner, has fielded calls from M&A lawyers who want to know if his clients are the targets of suits or could face future litigation. “It can be a tightrope walk,” says Stern. “You want to tell them enough to advance your client’s interest, but you don’t want the other side relying on you.” Over the past year, Stern has seen a steady increase in the number of inquiries relating to M&A deals and venture capital financings. Venture capitalists typically order detailed surveys of an IP portfolio involved in a prospective deal so they know what they’re buying. But investors now also want to know if they could get sued for funding a particular technology, says Stern. Steven Weiner, who joined Davis Polk last fall, says that the downturn in the market has prompted clients to demand detailed inventories of IP assets that go beyond a listing of patents and licenses. “You’re assessing exposure,” says Weiner. “You need to understand how it plays out [in the market].” Company executives also consider whether the IP portfolio they’re buying in an M&A deal could be useful in suing competitors. David Healy, an M&A partner at Fenwick & West, says companies might buy technology with the sole purpose of patenting it and then filing infringement claims against competitors. “It’s clear that offensive and defensive patent considerations are becoming an increasingly important driver in M&A deals,” he says. Ronald Laurie, who joined Skadden, Arps in 1998, says most of the negotiations in a deal involve IP issues. Increasingly, clients want to know how companies may use technology in the future. “Nobody knows how the technology is going to evolve,” he says. “There’s a lot of crystal ball work that goes on.” But the current emphasis on IP litigation as a marketplace tool is only part of the reason why IP is taking center stage, adds Laurie. Companies are doing more asset sales as they try to unload costly divisions or side businesses that are a drag on the bottom line. Laurie says disputes can easily arise when companies wind up surgically divided. “The problem is IP covers everything, from what they’re selling to what they’re keeping,” he says. Before an asset sale is completed, sellers and buyers are already considering whether they can be sued for use of the IP assets they’re left with. The bottom line? Company executives aren’t willing to leave the issues up to corporate lawyers anymore. “If you’re a good M&A lawyer,” says Laurie, “then you can’t read a patent.”

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