On a broader sense Due Diligence means the assessment of a company by a prospective buyer through an investigation and analysis of a target company. In this Article our aim is to provide an overview on how to draft a due diligence report (hereinafter referred as “DD”) and with a specific focus on Intellectual Property and Information Technology part of the DD.

In Turkish law there is no special regulation on Mergers & Acquisition¹, so the Turkish Law of Obligations shall be applied to all contracts signed during the M&A process. Following the letter of intent or memorandum of understanding between the Buyer and Target Companies, it is necessary to prepare a legal due diligence report to avoid the legal risks and get a good analysis for the buying party before the acquisition.

Although reviewing all the contracts and commitments of the target company is the most time consuming element of drafting a legal DD, it is a the most vital part. Especially the contracts bearing change of control clauses must be pointed out at the report.

Intellectual Property of a company in most of the cases determines the price of the company and should be carefully analyzed during the DD process. Especially the national and international patents and pending patents of the Company should be reviewed. It is also important to check if any rights are guaranteed to any of the employees due to an employee invention.

The Status of the registered and pending national and international trademarks of the target company must be controlled and if the company is using any copyrighted material, it should be stated in the DD. Furthermore, during IP checks and controls, it is important to review any ongoing and previous lawsuits of the target company along with any possible infringement of IP’s by any third party or if the target company has ever infringed on the intellectual property rights of a third party.

Another important point is to check if there are liens and encumbrances on the intellectual property rights of the target company.

Technology transfer and license agreements are the most vital contracts in Intellectual Property part of the DD and must be analyzed very well, especially the exclusive intellectual property license agreements signed with third parties.

All the Software that the target company is using must be licensed appropriately and it must be also taken into account if the company is using any open source software for its products and if any disputes arising out of the incorporated open source software.

Drafting of the legal DD report shall be done by a local full service law firm where the target company has been incorporated. If you have further questions to this topic, please don’t hesitate to contact us anytime.