Due diligence for tech M&A in Dominican Republic

Due diligence

What are the typical areas of due diligence undertaken in your jurisdiction with respect to technology and intellectual property assets in technology M&A transactions? How is due diligence different for mergers or share acquisitions as compared to carveouts or asset purchases?

In our jurisdiction, the due diligence aspects taken into account for technology and IP assets in technology M&A transactions are, in general terms, quite similar to M&A transactions in other sectors, as long as the technology company is not regulated in a particular sector. Naturally, there is a particular focus on aspects of intellectual property and copyrights, as well as aspects related to data protection. Regarding the different treatment that could be given to mergers or share acquisitions, the investigations during a due diligence process of aspects of intellectual property and copyrights are more exhaustive before the regulatory entities, since in these cases the transfers of each ownership right over the assets must be made expressly through the asset purchase agreement. In the case of the share deal, the drag mechanism operates. All the rights that were registered in the name of the company, because they are registered in its name, are the property of the buyer (new owner) as a result of the sale of shares through the share purchase agreement.

What types of public searches are customarily performed when conducting technology M&A due diligence? What other types of publicly available information can be collected or reviewed in the conduct of technology M&A due diligence?

Two primordial searches are carried out in this type of due diligence: before the ONAPI for industrial property rights; and ONDA for copyrights.

What types of intellectual property are registrable, what types of intellectual property are not, and what due diligence is typically undertaken with respect to each?

In principle, as mentioned before, all intellectual property are registrable. Although in certain cases there may be exceptions (or particular requirements that may be needed to complete the requirement) or the registration is not necessarily mandatory for the creation of the property right. By way of example, we can mention that copyright registration is optional since rights are acquired at the moment the work is created, as mentioned before. However, in these cases, the registration is advisable.

Can liens or security interests be granted on intellectual property or technology assets, and if so, how do acquirers conduct due diligence on them?

Yes. Liens and security interests can be granted on IP or technology assets. In particular, a patent for invention or for utility model, a registration for industrial design and a registration for trademark may be granted as guaranty for an obligation assumed by the holder--registered owner, and may be the object of attachment or other restrictions on control. Such liens and security interest must be recorded in favour of the creditor in the ONAPI, without which they shall have no legal effect. To to be effective the cancellation of such lien or security interest an interested party must make a request to ONAPI, attaching the correspondent evidence of the termination of the obligation.

What due diligence is typically undertaken with respect to employee-created and contractor-created intellectual property and technology?

Usually, all documents and information are requested from the seller or target checklist when the due diligence process is initiated. Additionally, official investigations are performed before the ONAPI and ONDA.

In this sense, pursuant to Industrial Property Law 20-00, if the employee was hired for such purposes, the invention will belong to the employer; on the contrary, if the employee was not hired for positions where he or she needs to invent, the employee will have to notify the employer about the invention. If the employer does not notify its interests in the invention, it will belong to the employee. If the employer does notify its interest in the invention, the employee will be compensated for the invention being registered on behalf of the employer.

According to the Copyright Law, the copyright of each work created in the Dominican Republic consists of moral rights and economic rights. Only an individual may be an author (moral rights). However, an entity may exercise the copyrights and related rights (such as economic rights) as derivative holder, in accordance with the rules of such law. In this particular case, it is important to mention that in works created in employment relations, the ownership of the economic rights shall be governed by an agreement between the parties. In the absence of express contractual provision, it is presumed that the economic rights are owned by the author.

Are there any requirements to enable the transfer or assignment of licensed intellectual property and technology? Are exclusive and non-exclusive licences treated differently?

The holder or applicant of a patent may grant to third parties one or more licences for exploitation of the invention that is the object of the patent or application. Such licence must be in writing and recorded in the ONAPI. The licence will have legal effect for third parties only after being recorded. Unless the licence agreement provides otherwise, the following criteria will apply, among others:

• the licensee cannot assign the licence or grant sub-licences (if permitted, such transfers will have to be registered for enforceability purposes);
• the licence is not exclusive and the licensor can give other licences for the exploitation of the patent in this country, and also may himself or herself exploit the patent in this country; and
• when the licence is granted as exclusive, the licensor will not be able to grant other licences for the exploitation of the patent in this country nor him or herself exploit the patent in this country

What types of software due diligence is typically undertaken in your jurisdiction? Do targets customarily provide code scans for third-party or open source code?

Not applicable.

What are the additional areas of due diligence undertaken or unique legal considerations in your jurisdiction with respect to special or emerging technologies?

Not applicable.