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Structuring and legal considerations

Key laws and regulations

What are the key laws and regulations implicated in technology M&A transactions that may not be relevant to other types of M&A transactions? Are there particular government approvals required, and how are those addressed in the definitive documentation?

Technology M&A transactions in Peru have been growing steadily in the past few years. However, the number, complexity and ticket size of such transactions are still low in comparison to similar deals closed in some Latin American countries, such as Brazil, Mexico and Chile.

Most recent technology transactions in Peru may be grouped in one of the following categories: local closing of foreign agreed transactions; acquisition of local businesses by foreign technology companies to gain faster access to local markets; or deals in which larger companies or venture capitalists acquire local start-ups to get access to their platforms or teams.

Considering the small size of the technology M&A market in Peru, no specific regulations have yet been issued regarding these transactions. For instance, there are no restrictions on the sale or transfer of any type of intellectual property. The transfer of a company that has access to personal data does not have restrictions, provided that the company keeps and manages personal data under the same conditions that were previously authorised by the data holders. However, note that the transferal of the data itself should be authorised by data holders (Law No. 29733, the Law for Personal Data Protection and the Regulation to the Law approved by Supreme Decree No. 003-2013-JUS).

Government rights

Are there government march-in or step-in rights with respect to certain categories of technologies?

No, there are no march-in or step-in rights with respect to any category of technologies under Peruvian laws.

Legal assets

How is legal title to each type of technology and intellectual property asset conveyed in your jurisdiction? What types of formalities are required to effect transfer?

In Peru, legal title over technology and IP assets are granted to the individual who has developed such technology, or the company; if the technology is developed by individuals under labour or services agreements unless the parties agree otherwise (article 36 of Legislative Decree No. 1075 and article 23 of Andean Community Decision No. 486 for patents, utility models and industrial designs and article 71 of Legislative Decree No. 822 for copyrights (ie, software)).

According to Peruvian laws, Peruvian administrative authority the National Institute for the Defence of Competition and Intellectual Property (Indecopi) grants or recognises, as the case may be, the following titles in the case of inventions and technology developments:

  • patents: protection as an exclusive right to use and exploit and benefit from an invention is granted for a 20-year term;
  • utility models: protection as an exclusive right to use and exploit and benefit from an invention is granted for a 10-year term;
  • industrial design: protection as an exclusive right to use and exploit and benefit from a design is granted for a 10-year term; and
  • copyrights (ie, software): protection of moral rights and economic rights are different in scope and nature. Moral rights remain permanently to the benefit of the creator of the software code, electronic board, etc. Regarding economic rights, these can be transferred and are granted for the life of creator and additional 70 years after his or her death. Copyrights are protected by Peruvian law even if they are not registered at Indecopi.

Terms and procedures for registering a technology innovation or a development and obtaining legal titles over it are the following:

Patents, utility models and industrial designs

The procedure for registering a patent could take between three and five years, while registering a utility model could take approximately three years. Regarding registering an industrial design, the procedure could take between six to 12 months. To carry out any of these procedures, an application must be filed with Indecopi and has to be published in the Official Gazette. Once the application has been reviewed and approved by Indecopi, the authority grants the patent, utility model or industrial design, as requested, provided that no opposition from third parties has been filed.

If the person has filed his invention under the Patent Cooperation Treaty (PCT), this person can file a patent application before Indecopi using the priority given by the date of the PCT filing.

Copyrights (ie, software)

The procedure regarding copyrights takes approximately 30 to 120 business days. The procedure consists of filing a request with Indecopi, who, after reviewing it, will register the work (ie, software). This registration is not mandatory.

In the context of an M&A, the transfer of IP rights is agreed to by the parties in a merger or purchase agreement (as the case may be) and registered with Indecopi. Further, Indecopi will require an application with a copy of the merger’s public deed or the entry issued by the Public Registries regarding the transaction, and payment of the correspondent administrative fees (approximately US$120).

Due diligence

Typical areas

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 Peru, due diligence related to technology M&A gives great importance to IP rights, their validity and enforceability, and the adequate performance of technology assets for the stated and agreed acquisition purpose.

Regarding IP rights, the review of labour agreements is prioritised to ensure all work performed by employees to develop the technology accrues directly to the benefit of the employer. If third parties have been hired for specific developments, it is important to review such third-party agreements to be certain that the target company has full ownership of the development. Additionally, it is also relevant to confirm that the holder of the IP rights to the assets has not or is not currently infringing any third-party rights.

When dealing with technology M&A transactions, importance is also given to the technical review of the IP assets. See question 10.

The main difference between mergers or share acquisitions, as compared to carveouts or asset purchases in the context of a traditional due diligence, is the scope of the analysis, and the matters to be reviewed in each of them are the key differentiators.

In this sense, mergers or share acquisitions involve acquiring a company and, consequently, it will be required to examine, at least, matters concerning corporate, tax, labour, regulation, intellectual property, real estate, the environment, litigation, personal data and insurance. (Other types of due diligence must be also required, such as financials, accounting, human resources, technical and operational due diligence to get the whole picture of the business and its operations.) Regarding legal due diligence of carveouts or asset purchases, it must be specifically focused on reviewing the asset to be acquired; therefore, legal due diligence should include property rights, intellectual property, taxes, regulatory and administrative matters, as well as insurance and litigation aspects related to the asset. Technical, commercial and operational due diligence processes become important in an asset acquisition.

Technology M&A due diligences are different based on the fact that technology companies are different from traditional companies. Technology companies are dependent from other technology providers, third parties and technology elements that give support to the company and the necessary tools to carry out its business. This means that technology companies exist and operate in an economic environment characterised by seamless integration and sometimes complex and crucial relationships.

Thus, there are some critical issues to focus on when performing a diligence over a technology company or IP assets. For instance, it is crucial to have a clear and detailed picture of cybersecurity matters, data privacy regulations and procedures, third-party IP rights, and any other matter related to information and know-how of the target.

Technology and IP assets involve sensitive and critical information that must be carefully protected, and the know-how and complex relationships must be assessed and duly determined in the due diligence to assure the business will continue operating.

Consequently, we recommend verifying if the seller is following security protocols, compliance procedures and setting critical operational rules (ie, information safety guidelines, rules regarding coding procedures as well as access to use of third-party codes or services, rules for backup of data, employee training plans, set of certain data access policies (ie, passwords), constant supervision of users of the information, among others) applicable to workers and service providers, and confidentiality agreements, among others.

Based on the above and according to our experience, we estimate that legal due diligence for mergers or share acquisitions usually take around four to six weeks, and legal due diligence for carveouts or asset purchases usually take about three to five weeks from the date that we receive complete information we request. However, it will depend on the complexity and the amount of information in each case.

Customary searches

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?

In Peru, it is customary to carry out the following public searches when conducting technology M&A due diligences:

  • a search at Indecopi to verify IP asset registration status, amendments and other acts that could affect them (eg, a transfer, pledge, lien, registry cancellation) as well as to confirm identity of title holders of such intellectual property. We always suggest conducting searches before the following administrative authorities:
  • patents, utility models and industrial designs before the Directorate of Inventions and New Technologies.
  • copyrights (ie, software) before the Directorate of Copyrights. This search is merely referential, since registering copyrights is not mandatory.
  • a search at the Registry of Movable Assets and Contracts to verify if the specific IP asset or technology has any lien, if it has been licensed or if there is any specific agreement by seller with third parties over such asset (recently enacted Legislative Decree No. 1400, Law of the Security Interests, changes the above-mentioned registry for a new system of publicly available information called the Information System of Movable Assets (SIGM);
  • if technology M&A involves a company acquisition, it must be highlighted that the completion of such transaction will necessarily require the buyer to obtain more information and, consequently, carry out additional searches. For instance, it will be necessary to conduct public searches at the Peruvian public registries to confirm property rights, company’s information, contracts, Indecopi (trademarks), the judicial courts to look for litigation procedures, credit reporting agencies for obtaining credit history of the company, among others.

Registrable intellectual property

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?

As mentioned in question 3, under Peruvian law, the following IP rights are registerable, among others: trademarks, patents, utility models and industrial designs. The registration of these IP rights is mandatory and it is a requisite for its legal protection and exclusivity under Peruvian law.

The registration of copyrights (ie, software) and trade names is not mandatory. Holders of such intellectual property do have certain rights even if they do not register their work (eg, right to use, exploit, among others).

Legal due diligence of registrable assets usually involves the review of the following information:

  • certificate of IP rights issued by Indecopi, labour or services agreements if the holder of the IP rights is a company;
  • expiration terms;
  • proof of use,;
  • payment of legal annual fees, if applicable; and
  • registration of liens or security over IP rights at Indecopi.

Regarding non-registrable IP assets, legal due diligence usually includes the review of all the executed agreements and legal matters described in question 4.

In addition to the legal diligence of registrable and non-registrable IP assets, acquirers also request completion of market investigations or researches (quality and quantity) to confirm competition, advantages, improvement opportunities, etc.

Liens

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 over intellectual property can be granted under Peruvian law.

Liens are granted by a judiciary order upon claimant’s request (article 608 of the Civil Procedures Code). This order can be obtained as a precautionary measure provided that there are enough grounds to support such claim. Once the lien is obtained, the court order its registration in the Registry of Movable Assets and Contracts and the corresponding registry of Indecopi. Registration at the Registry of Movable Assets and Contracts will vary (see question 5).

Security interest agreements have to be executed by the parties in writing to be valid (article 17 of the Law of Guaranty over Movable Assets, Law No. 28677, and article 6.2 of the new Law of Security Interests, Legislative Decree No. 1400, which will be enforceable once the Peruvian government implements the SIGM). It is not mandatory to register such security interests at the Registry of Movable Assets and Contracts (or to register security interest at SIGM once it is implemented). However, we strongly recommend registering them in order to ensure priority and enforceability against any third party.

As we said before, acquirers could carry out searches of IP rights at Indecopi as well as in the Registry of Movable Assets and Contracts (or SIGM, as the case may be).

Employee IP due diligence

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

According to Peruvian law, intellectual property developed under labour or services agreements is the property of the employer unless parties agree otherwise. Thus, due diligence review will usually focus on verifying that there is no specific agreement against the previously described rule.

Additionally, given the relevance of the IP assets, it is important to verify if the employees or contractors have executed non-disclosure and non-compete agreements with the target.

Transferring licensed intellectual property

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

No, there are no specific requirements by law for a transfer or assignment of intellectual property and technology, and there is no regulatory difference between exclusive and non-exclusive licences regarding transfer or assignment. Usually, contracts providing a licence to use certain intellectual property include a limitation to sub-license such intellectual property unless a previous written approval is granted by licensor. There is no specific regulation setting forth any additional requirement for the transfer or assignment of such licensed intellectual property.

Assignment is granted by licensor based on a contract that is registerable at Indecopi and the Registry of Movable Assets and Contracts. It is not mandatory to register such rights or its transfer. However, we recommend our clients to register the licences given that registration ensures enforceability against third parties in case of patents, utility models and industrial designs.

However, in the case of copyrights (ie, software), the registry at Indecopi only gives the holder proof of priority and informs third parties about the registered right (Copyrights Law, Legislative Decree No. 822, article 171 Andean Community Decision No. 351, article 53).

Software due diligence

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?

When dealing with technology M&A transactions, we have seen a major relevance of the technical review of the IP assets. In this regard, usually the technical review includes, but is not limited to, having access to the source code and being able to run different tests, which may include stressing different areas of the code or platform to verify its capacity and growing potential.

Other due diligence

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

There is no specific regulation on these matters or any M&A experience regarding these technologies that we are aware of. With regard to big data, it is important to consider that Peru has adopted specific privacy legislation such as Law No. 29733, Law for Personal Data Protection and its Regulations (Supreme Decree No. 003-2013-JUS). These pieces of legislation establish a National Register of Personal Data Protection and recognise guiding principles for the processing of personal data and regulate cross-border data flows.

As to natural language processing and speech recognition, there are an increasing number of Peruvian companies (banks, software companies integrating this service to their platforms) that are licensing these technologies and we have provided legal assistance to certain companies interested in such technologies. Similarly, we have been working closely to companies developing internet of things products and connected devices. See question 4.

Purchase agreement

Representations and warranties

In technology M&A transactions, is it customary to include representations and warranties for intellectual property, technology, cybersecurity or data privacy?

Yes, it is customary. Usual representations include the following per each category.

Intellectual property

Representations and warranties include that the company is the exclusive owner of the entire right, title and interest in and to the intellectual property, and has a valid licence to use the intellectual property in connection with the business, as well as that the company is entitled to use all of its intellectual property in the continued operation of the business without any limitation. Additionally, the buyer usually includes representations that the company’s intellectual property has not been declared invalid or unenforceable in whole or in part. Further, it will be reasonably required to include that the current business does not infringe or misappropriate the intellectual property of any third party, and no action alleging any of the foregoing is pending, and no claim has or could be filed (to the best of the seller’s knowledge) against the seller or the company alleging any of the foregoing during a certain period.

Additionally, the acquirer could request the seller to provide representations about royalties, IP licences agreements, other commitments that involve IP rights or technology, etc.

Technology

Common representations and warranties include that the company is the exclusive owner of the entire right, title and interest in and to the technology, and has a valid title to use it in connection with the business without any limitation. Additionally, it is customary to include statements by means of which the seller or the target warrants that it has all permits, licences, authorisations and any other requirement to use the technology, as the case may be.

Cybersecurity

Usually, a buyer asks for representations and warranties regarding the rules and procedures that the target has regarding the management and protection of its information. In this sense, representations and warranties include that the target keeps its information under reasonable standards of care and diligence as well as that he or she manages his or her data following standard security protocols, procedures and rules to prevent any theft, disclosure, manipulation or deletion.

Data privacy

The buyer and the target must acknowledge and declare that they are in compliance with all Peruvian data privacy laws and they do not infringe any third-party right.

Additionally, as customary in Peruvian M&A transactions, we recommend including a complete list of all patents and patent applications, registered trademarks and trademark applications, registered copyrights and copyright applications and domain names under company’s control or material to company’s business or operation; all company IP agreements; and other company intellectual property relevant to the business, as the case may be.

It is also necessary to review all material contracts related to third-party IP rights and services. The rationale behind this suggestion is to have more certainty about the IP assets and technology of the target and specific representations and warranties on this regard.

Customary ancillary agreements

What types of ancillary agreements are customary in a carveout or asset sale?

Based on our experience, licences and authorisations are usually transferred at closing date. However, when the transaction includes certain licences or permits that may be transferred only after a procedure before the correspondent authority is completed, it is customary to include in the purchase agreement additional transitional covenants, such as, but not limited to, rights of use of trademarks and tradenames during the term necessary to complete registration. In this sense, the parties usually establish terms and conditions under the carveout agreement (ie, spin off) or asset sale itself.

Notwithstanding the above, transition services agreements will be also required to allow acquirer to ensure that business continues to operate as usual. Based on current level of technology development and technical expertise in Peru, it may also be necessary and convenient to execute labour agreements or technical support agreements with the main technical officers of the seller or the experts who managed and have material information about the technology assets.

Usually, non-compete agreements and non-disclosure agreements could be required, as in other M&A deals, owing to the relevance of specific expertise, human resources and information itself.

Finally, executed general shareholders meeting minutes will be required if a company transfers assets whose book value exceeds 50 per cent of its share capital (article 115,5 of Peruvian Corporate Law, Law No. 26887).

Conditions and covenants

What kinds of intellectual property or tech-related pre- or post-closing conditions or covenants do acquirers typically require?

We have seen and highly suggest setting forth the following conditions and covenants in all M&A technology transactions:

  • pre-closing conditions or covenants:
  • satisfactory completion of full legal and technical due diligence;
  • no injunction or any other measure is entered against the intellectual property and technology of the target or seller;
  • representations and warranties about intellectual property and technology are true and correct in all respects at the moment of execution of the agreement;
  • approval of the transfer of the intellectual property and technology from the general shareholders meeting of the target;
  • signature of all ancillary and transitional documents (ie, transitional services agreement);
  • complete the transfer of IP registry including, but not limited to, its registration;
  • release of all liens over the intellectual property, as the case might be;
  • complete the registration of the transfer of intellectual property (eg, patent, utility model) in favour of the buyer at Indecopi;
  • remediation of source code issues, if applicable;
  • correction of chain of title for intellectual property, if applicable; and
  • execution and receipt of all necessary governmental, regulatory and other third-party approvals, certifications and permits, if applicable (Note that it will depend on the specific deal and it could be set as post-closing condition or covenant of the seller); and
  • post-closing conditions or covenants:
  • technical support agreement for certain period;
  • guarantee of technology assets for certain period of time;
  • provision of on-site services by seller’s expert personnel;
  • a monetary compensation in favour of buyer if technology does not perform or does not have the specifications stated by seller and agreed to by parties in the purchase agreement;
  • additional satisfactory technical due diligence to be carried out by buyer; and
  • extra testing periods.

Survival period

Are intellectual property representations and warranties typically subject to longer survival periods than other representations and warranties?

What is customary in Peru is to include a general indemnity section for breach of any rep and warranty (including, but not limited to, IP representations). No specific additional term is usually included besides the general term of the indemnity.

Considering the aforesaid, we recommend performing a complete and thorough due diligence that could be carried out as pre- and post-closing condition instead of bargaining longer survival periods of IP representations and warranties. The reason behind this is that it is difficult to oblige IP holders for long-term periods and make such agreement enforceable.

Breach of representations and warranties

Are liabilities for breach of intellectual property representations and warranties typically subject to a cap that is higher than the liability cap for breach of other representations and warranties?

In Peru, limitation of liabilities is only allowed by law when a breach is caused by minor negligence of the breaching party. Limitation of liabilities under Peruvian laws is not enforceable when the breach is owing to gross negligence or willful misconduct. Notwithstanding, it has become customary to include in all purchase agreements as a maximum cap of damages the total amount or value of the contract. In that sense, no specific upward limit is included for IP representation.

In purchase agreements that may create a breach of certain IP rights held by foreign companies, we recommend clients to include a rule regarding the way in which litigation will be handled and, eventually, the direct payment of any damage and loss that may be awarded to such companies. This is in addition to the damages directly caused to an IP buyer.

Are liabilities for breach of intellectual property representations subject to, or carved out from, de minimis thresholds, baskets, or deductibles or other limitations on recovery?

Usually not. In our experience, a breach of IP representations is material and, therefore, causes the termination of the purchase agreement. However, it is possible that, if the infringement is not material, parties could agree that the seller will remedy the breach in a given term or provide certain form of compensation, according to the value of the contract.

Indemnities

Does the definitive agreement customarily include specific indemnities related to intellectual property, data security or privacy matters?

Yes. Usually, the agreements include specific indemnities. In this context, buyers tend to include a clause in which they shall be indemnified and held harmless by the seller or the company, jointly and severally, for and against any loss, arising from or related to:

  • any breach of representation or warranty related to intellectual property, data security of privacy matters, made by the seller or the target;
  • liabilities of the target related to intellectual property, technology and data privacy whether arising before or at the time of signature of the agreement;
  • liabilities of the target, arising after the time of signature of the agreement, even if the liability relies on any action, inaction, event, condition, liability, obligation or any other contingency made or generated before or at the time of signature of the agreement; and
  • any and all losses suffered or incurred by the buyer or the target company (in the case of a technology M&A whereby a whole company is acquired) by reason of or in connection with any claim or cause of action of any third party to the extent arising out of any action, inaction, event, condition, liability or obligation of the seller or, prior to the signature of the agreement.

Walk rights

As a closing condition, are intellectual property representations and warranties required to be true in all respects, in all material respects, or except as would not cause a material adverse effect?

In our experience, parties usually agree that IP representations shall be true in all respects at the time of closing, and the acquirer is given the right to decide whether such condition is met. In Peruvian M&A deals, the acquirer normally has the right to close or leave open the transaction.

However, there are mechanisms that the parties negotiate and set forth in the agreement in order to be more flexible and close the deal under less risky conditions. For instance, certain conditions could be met as a post-closing obligation, provided that buyer hold back an amount of the purchase price or the buyer deposit an amount of the purchase price in an escrow account until such obligation is fulfilled.