Keys for Success in Shaping M&A Deals for AI Companies

The ongoing debate among some of the most influential tech entrepreneurs regarding the inherent risks of artificial intelligence (AI) appears not to have dampened enthusiasm in boardrooms for acquisitions of AI companies this year. Indeed, CB Insights reports that 2017 is shaping up to be a historic period for M&A involving AI companies with 60 deals reported in the first half of the year, compared with 78 M&A deals reported in the AI sector during all of 2016. Many of these deals involve well-established corporations acquiring AI startups that have recently been spun-out of university labs. Some of the key issues commonly found in these deals include ownership of IP, special employee concerns and the management of deal announcement in a highly charged media environment.

Ownership and Rights to Exploit IP

Perhaps in part because of the abstract and novel ideas around which AI startups are formed, many founders of AI companies are professors or PhD students who are working at or for universities at the time the company is formed. This close nexus to universities gives rise to a raft of issues that should be reviewed when considering the acquisition of an AI startup. Who owns title to, and rights to commercialize and exploit, the intellectual property at the heart of the startup is fundamental to the value of the startup and should be clearly established at the outset of the acquisition diligence. Research universities have written policies governing the ownership of IP created by faculty and students, and the policy that applied at the time that the IP was created should be reviewed carefully. Most research universities also have Technology Transfer Offices (TTOs) that assist the university (including faculty and students) to protect and license IP developed by the university and generally to guide the commercialization of such IP by private enterprises. The TTO of the applicable university should be consulted early in the diligence process if there is any uncertainty as to who owns title to IP purportedly owned, or used by, the AI startup, or as to the scope of the AI startup’s rights to the commercialization or proceeds derived from the use of such IP.

Confidential Communications