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?

Buyers in technology M&A transactions typically require a wide range of warranties for intellectual property, technology, cybersecurity and data protection, although the scope of such warranties, as well as the applicable qualifiers and limitations, will depend both on the nature of the business and on the bargaining power of the parties. Warranties in transactions that are run as auctions tend to be limited. IP warranties are usually based on a broad definition of IP rights (which also includes rights that, at least under English law, are not technically IP rights, such as rights in know-how and confidential information, rights in goodwill and to sue for passing-off and rights in or to domain names).

Key IP warranties address such matters as:

  • ownership, free from encumbrances, of all IP rights purportedly owned by the target group;
  • full disclosure of material IP licences (in and out), which then customarily benefit from the ‘material contracts’ warranties;
  • lack of infringement (usually knowledge qualified) by the target business of third-party IP rights or by third parties of material target-owned intellectual property;
  • no challenges to the validity or enforceability of registered intellectual property;
  • ownership of all rights in employee and contractor-created materials;
  • protections afforded to confidential information and the circumstances in which it has been disclosed; and
  • open source software usage and lack of disclosure of the source code of proprietary software.


Key themes of IT warranties are:

  • the target group’s ownership of, or continued rights to use, key IT systems;
  • disclosure of all material IT agreements (together with covering them with material contracts protections); and
  • comfort that all IT systems are in good working order and have not suffered significant security breaches or disruption.


Privacy warranties focus on compliance with the UK GDPR and other applicable privacy laws, including as regards collection of data, appointment of processors and cross-border data transfers, and lack of regulatory investigations or third-party allegations of non-compliance.

Customary ancillary agreements

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

Customary ancillary agreements include the following:

  • Short form deeds of assignment to transfer assets (including IP rights and technology). These deeds are then used for recording assignments of registered intellectual property.
  • Transitional services agreements governing continued provision of support services (such as IT or back office functions) to facilitate the transition of shared functions from the seller’s group to the buyer’s group or vice versa.
  • IP licences, such as a transitional trademark licence to allow the buyer to rebrand in a measured way and longer-term technology licences (in either direction) addressing ‘shared’ intellectual property.
  • Depending on the specific features of the transaction, manufacturing and supply agreements, distribution agreements, research and development agreements, joint procurement agreements and long-term service agreements.


Conditions and covenants

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

In the period between signing and closing, the responsibilities imposed on the seller may include a variety of housekeeping tasks, such as:

  • obtaining third-party consent to change of control or assignment of IP licences;
  • amending material IP or IT contracts as may be required to successfully integrate the target into the buyer’s business;
  • seeking out missing documents relevant to proof of chain of title;
  • the execution of assignments from contractors or consultants, where the ownership of previously developed intellectual property is not clear from the existing documentation;
  • tidying up material domain name registrations to ensure that they are held in the name of a target company; and
  • remediation of open source issues.


Pre-closing, there are typically obligations on the seller to continue to maintain and protect the intellectual property that is being sold, not to dispose of any material intellectual property or let it lapse, not to enter into, amend or terminate any material IP licences and not to commence or settle any IP-related litigation.

Post-closing, there are likely to be obligations on the seller to assist the buyer in perfecting title to the intellectual property being sold (such as by lodging confirmatory assignments or forms required by relevant registries to enable the registers to be updated). Post-closing exclusivity or non-compete obligations may also be required, preventing the seller from using, for example, any technology or brands forming part of the sale in a way that is likely to infringe the buyer’s rights or unfairly compete with the buyer in the future.

Survival period

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

There is no hard and fast rule as regards the survival of IP warranties; this will vary case by case and depend largely on the significance of intellectual property to the transaction as a whole. It is not uncommon to have the warranties identified as fundamental survive longer than the business warranties. However, IP warranties will not normally form part of the fundamental warranties. Where there is no identified set of fundamental warranties, all warranties (including those relating to intellectual property) will typically be subject to the same survival period.

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?

Any cap on liability will be the subject of negotiation a case-by-case basis. The cap may be higher, or indeed lower, for IP warranties depending on the value and significance of the intellectual property involved and also on the level of risk that has been identified in the diligence process. For example, there may be a known possibility of patent infringement that may significantly alter the value of the intellectual property being acquired.

Typically, liability for fundamental warranties is capped at 100 per cent of the consideration and non-fundamental warranties are capped at a much lower level (eg, between 5 and 25 per cent of the total consideration).

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?

In general, IP warranties are treated in the same way as the wider business warranties, unless there is a particular reason as to why such treatment should differ. If there is such a reason (eg, a significant risk has been identified in due diligence) then that risk is likely to be the subject of an indemnity.


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

In English law, contractual indemnities are generally only provided in relation to a known risk which, if it crystallised, would give rise to a substantial loss or other material damage to the target business. This most commonly arises where there have been IP infringement allegations made against the target, but no formal litigation has been commenced. Also, given that the ICO is empowered to apply a maximum penalty of: (1) £17.5 million; or (2) 4 per cent of worldwide turnover (whichever is higher), and that there is a possibility of substantial damage to the business’s reputation should any significant breach emerge, any known possibility of non-compliance is very likely to give rise to a request for an indemnity by the buyer. Liability for indemnities of any kind, including those that relate to intellectual property and data protection or cybersecurity, is often subject to a much higher cap than that which applies to the general warranties, or there may be no cap at all. Additionally, specific indemnities are not usually subject to de minimis thresholds, baskets or deductibles.

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 general, the only warranties that are likely to give rise to a right for the buyer to walk away at closing are those classified as fundamental warranties. As previously mentioned, IP warranties will not usually form part of the fundamental warranties, although this may vary depending on the significance of the intellectual property to the transaction, the length of the gap between signing and closing and any known risks associated with the intellectual property.

It would not be typical to introduce a general materiality qualifier for any warranties given at closing, but rather the original signing warranties would be repeated on the same basis as they were given originally.