Minnesota Lawyer
The deal-making process can be disruptive to both buyers and sellers, and in particular, when it comes to protecting trade secrets. “It’s one of the biggest issues that comes up when deals fall apart,” said Randall Kahnke, of Faegre Drinker Biddle and Reath.
A conflict arises when the seller is trying to protect its trade secrets and the buyer wants to do its due diligence before it enters into a deal. “As part of due diligence you’re exposing some confidential information. We don’t want to be overly protective. If the deal doesn’t close and the other side goes into the same [business], and it looks a lot like what you provided to them, problems result,” Kahnke said. Sometimes companies looking for a venture are doing a build or buy analysis, and are doing it even while they are doing diligence. “Then they decide to go with build. Boom,” the situation blows up, Kahnke said.
The lesson from that situation is that the ethical wall around the confidential information is crucial. “Do you have an ethical wall, can you track information, do you have documentation of your development efforts? Did you have the discipline to adhere to the ethical wall?” he explained.
Sophisticated business people are thinking about these things in advance and are really committed to it, Kahnke said. The issue is, “where are you going to focus your internal expertise and how are you going to fight the temptation to have a foot on each side,” Kahnke said. “Businesses want to use the resources and budget that are on both sides of the wall.”
The other thing that buyers and sellers both want to hang on to is their good reputation. “Your reputation in this practice is, ‘is your word good,’”Kahnke said.
Then there’s the danger of a fraud claim. Rule 9 of the Minnesota Rules of Civil Procedure sets a high pleading bar for a fraud claim. “If a plaintiff can satisfy Rule 9 you’ve really got to take it seriously. It’s important to put a stake through the heart of fraud claims quickly,” Kahnke warned.
