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06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 81COMMUNITY COMMENTARYeral registration of a mark include the right tobring an action concerning the mark in federalcourt, the ability to prevent importation of infringinggoods by filing the registrationwith the United States Customs Serviceand the opportunity to use suchregistration as a basis to obtain registrationof the mark outside of the UnitedStates. Federal registration also allowsthe registrant to potentiallyrecover treble damages, attorneys’fees and other remedies.In the first example cited above,the company’s registration of its markwith the USPTO would have placed the thirdpartyapplicant on notice of the company’sownership of the mark. The third party’s applicationwould have been denied by the USP-TO at the outset and would not have appearedin the trademark search results. There wouldno longer be a need for a holdback of any portionof the purchase price at closing and thebusiness owner would have walked away withmore money at closing. If the third party beganusing the mark, the company could file an infringementlawsuit in federal court seeking“There is no question that theregistration of a business’s name,trademark and/or service mark comeswith many benefits and, ultimately,increases the value of the business.”treble damages, attorneys’ fees and otherremedies.Likewise, in the second example, the company’sfederal registration of its mark wouldhave assured the buyer that the company hadexclusive rights to the mark. It also would havehelped pave the way for the buyer to registerthe company’s mark in its home country postclosing.Once a company registers its mark, thequestion becomes how to value it. As notedin a recent roundtable in Mergers & Acquisitions(“Reinventing the Deal,” October,2008), the valuation of intellectualproperty can be difficult.Notwithstanding the difficulty surroundingvaluation, there is no questionthat the registration of a business’sname, trademark and/or servicemark comes with many benefits and,ultimately, increases the value of thebusiness. The cost of registration bycompetent counsel is relatively low,even for a start-up company, and the downstreamproblems that may arise without registrationcan be significant, as illustrated bythe above examples.Denise Walsh is an attorney with Marcus, Brody,Ford, Kessler & Sahner, LLC, while Robert Shepherdis a shareholder with Mathews ShepherdMcKay and BruneauTHE PULSE continued from page 79David Acquavellaacquisitions each year.—————————As to whetheror not it will impactthe M&Aarena, we believethe answer is yes,but we also believethat it willaffect the largerdeals more so thanthe middle andlower markets. Privateequity accountsfor billionsof dollars in crossbordermerger and— David Acquavella,Southeast Investment BankingM&A transactions will decline as a result ofboth increasing costs and much greater governmentoversight.Funding costswill continue torise and therewill also be anew layer ofcosts associatedwith new governmentoversight.Governmentoversightis going to increase,both inthe US and fromsome internationalbody thathas yet to beBetty E. Reedformed. I fear that these oversight groups willgo to the extreme, requiring their approval onany M&A deal involving any entity in any waythat has taken taxpayer money, regardless ofwhether the taxpayers were English, American,etc.These oversight bodies will base their approvalor lack thereof on such issues as potentialjob loss and other “harmful” outcomesto the taxpayer and the taxpayer’s home economy.Think of the recent Chicago factory sitinand what appeared to be capitulation byboth Bank of America and JPMorgan Chase,but on a much larger scale. To avoid this overinvolvement, the parties involved in the M&Atransaction will seek funding from non-traditionalproviders such as sovereign wealthfunds and wealthy individuals such as WarrenBuffett and his billionaire class in orderto avoid the scrutiny and the micro-management.— Betty E. Reed, Principal,Abraxas Business Services—————————February 2009 ACG > MERGERS & ACQUISITIONS 81
06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 82COMMUNITY COMMENTARYStaying Ahead of Corruption LiabilitiesCompanies pursuing cross-border deals need a detailed FCPA due diligence processto address potential pitfalls.By Ivan R. Lehon, Richard Sibery and Tom PannellThe discovery of bribery of a foreign governmentofficial after closing an acquisitionis one of the fastest ways to losecompany value, given that the regulatory andlegal fines, penalties and remediation costs canbe significant. Even without regulatory action,fraud and illegal acts pose a barrier to operationalefficiency for a strategic or financial buyer.For an investor, the post-acquisition discoveryof a fraudulently enhanced revenue streamwill not only erode company profitability but willalso impact exit realization and the internal rateof return.As corporations continue to acquire newbusinesses, expand globally and enter newemerging markets, they must be cognizant ofthe increased exposure to the US Foreign CorruptPractices Act (FCPA) and other internationalanti-corruption laws and regulations. Recently,the US Department of Justice (DOJ) issued anopinion concerning potential FCPA implicationssurrounding a proposed acquisition. The areashighlighted in this opinion demonstrate the needfor companies making global acquisitions tohave a robust FCPA and anti-corruption due diligenceprocess including an assessment of the“Nearly 30% of companies that acquireda new business in the last two yearsnever or infrequently consideredbribery or corruption risks.”relevant risk factors. A detailed FCPA due diligenceprocess can address potential pitfallsseen in high risk market transactions.A significant number of FCPA enforcementactions in 2007 arose in the context of a mergeror acquisition. Yet nearly 30% of companiesthat acquired a new business in the last twoyears never or infrequently considered bribery orcorruption risks in thecontext of a potentialacquisition, accordingto Ernst & Young’s 10thGlobal Fraud Survey,“Corruption or Compliance:Weighing theCosts.” Only one-thirdof survey respondentsclaimed to have somelevel of knowledge about the FCPA and fully58% of senior in-house counsel were not familiarwith the FCPA.While more than 45% of respondents claimto routinely conduct anti-corruption due diligence,the continued flow of FCPA enforcementactions suggests that representations and warrantiesrelating to bribery and corruption areonly one step in protecting the acquiring companyand its executives from successor liabilities,such as fines, penalties and imposition of a monitor.Furthermore, the purchase price may havebeen inflated if predicated onrevenues obtained due to questionablepayments.In many countries, the linebetween state-owned and privateentities is unclear, makingit difficult to determine whetherpayments to government officialsare occurring. Third-partyagents or consultants may facilitate paymentsof bribes to government officials, or may indirectlybe government employees themselves. Illegalpractices may continue after a company“As corporations continue to acquire newbusinesses, expand globally and enter newemerging markets, they must be cognizant ofthe increased exposure to the US ForeignCorrupt Practices Act.”is acquired, putting the acquiring company atrisk of major fines for the pre- and post-acquisitionactivities of a target company.Experience shows that dealmakers can mitigatethe risk of FCPA non-compliance, evenwithin the limitations of the due diligence period.In a June 2008 opinion commonly known as“the Halliburton opinion,” the Department ofJustice took a position allowing Halliburton toproceed with the submission of a bid for a targetwhere due to the UK tender offer rules, FCPArelateddue diligence would not be performed untilafter the acquisition closed. The opinionhinged on Halliburton’s commitment to successfullyimplement the comprehensive FCPA andanti-corruption program that the company hadproposed, to disclose and promptly resolve anyviolations discovered post-close, and to meetthe DOJ’s other rigorous conditions.While this DOJ opinion applies only to Halliburtonand its full impact remains to be seen,it reflects the high standards the DOJ expects acquirersto meet for FCPA compliance and underscoresthe importance of having an FCPA duediligence strategy.The first step in FCPA-specific due diligenceshould be a risk assessment, implemented duringthe initial phase of the overall due diligenceprocess and revisited as new information emerges.82 ACG > MERGERS & ACQUISITIONS February 2009
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