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Delaware Court of Chancery finds that a Reverse Triangular Merger may result in an assignment in violation of a contractual non-assignment provision

07 July 2011

IP Alert

In structuring a business acquisition, there are four commonly used transaction structures: (i) sale and purchase of all of the stock of the target company (Stock Acquisition); (ii) sale and purchase of all or substantially all of the assets of the target company (Asset Sale); (iii) merger of the target company into a subsidiary of the purchaser (Forward Triangular Merger); or (iv) merger of a subsidiary of the purchaser into the target company (Reverse Triangular Merger).


 
The transaction structure affects, among other things, whether consent may be required from third parties who have contractual relationships with the target company. Numerous types of contracts commonly include provisions prohibiting assignment thereof without the other party's consent. In the absence of an express non-assignment provision, federal principles governing patents and copyrights prohibit assignment of non-exclusive license agreements absent consent, as it has long been held that contracts granting non-exclusive patent or copyright licenses are personal to the patent or copyright owner.

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