Sign o' the Times - The Process Formerly Known as Due Diligence

Recent news stories on the estate of the late rock superstar Prince report confusion about ownership of rights to some of the most popular songs of recent years. http://www.slate.com/blogs/the_eye/2016/04/21/the_story_behind_prince_s_unpronounceable_love_symbol_2.html; https://www.forbes.com/sites/n...

According to published accounts, one music publishing house successfully bid on those rights – without ever having reviewed a prior grant of conflicting rights, to a different label. Some potential licensees reportedly even declined to bid on the most recently offered songs, because of legal uncertainties about those rights.

Presumably, those promoting the works of artist with his lifetime revenues measured in the millions of dollars could have afforded to retain competent counsel to conduct normal due diligence on the Estate’s intellectual property – as the Estate itself could have done.

The lawyers involved in the current license auction now seem to be running like fleeing rats, to protect the commissions they earned on the potentially poorly vetted deal. According to a Wall Street Journal report, one tried to dismiss the winning bidder’s legitimate concerns as “splitting hairs” – perhaps to deflect attention from the possibility that teams of skilled executives and their counsel closed a sale for rights that the seller did not fully own.

Since neither you nor I will ever see any of those revenues (except in the gossip pages of the internet), why should we care about wealthy firms fighting over how they carve up the value of a dead musician’s work?

Yet our business clients regularly ask exactly that question, when they balk at the business and legal expenses associated with due diligence in the purchase and sale of a business, or business rights.

Anyone who has ever been involved in legal due diligence knows that it can be tedious - and difficult. Asking one question often just leads to many more, with no end of follow up questions in sight - with professional advisors’ meters running at all times.

From clients’ perspectives, all of that legal work just seems to add more expense to the transaction, reducing the value of the underlying assets, without producing any apparent business benefits.

But the saga of rights to Prince’s music reminds us that the usually simple task of confirming that a seller actually owns what it purports to sell is far more than “splitting hairs”. Instead, that is one of the questions at the core of all due diligence:

• What assets and rights are being sold?
• Does the seller own them free and clear of claims of others?
• Are the rights transferable, or must a third party approve the transfer?
• Am I speaking to the proper party who has the power to transfer the rights?
• Is there any litigation over the rights?
• How strong are the rights - are they registered (which adds certain legal advantages), or just held at common law?

Being forced to “split hairs” over any one of these questions can sidetrack an otherwise solid deal – and make it much more expensive.

But the consequences of not splitting hairs can be far worse – even more so for the parties’ professional advisors, who may have ethical duties to investigate these issues, whether or not their clients want them to do so, or are willing to pay for that investigation.

If you would like to discuss due diligence investigation about potential deal, please contact Stanley Jaskiewicz, Esquire, of Spector Gadon & Rosen, PC, at 215-241-8866, or sjaskiewicz@lawsgr.com

. There is no charge for an initial conversation to see if we can assist you, and, potentially, to help you understand whether you have a problem, and how much it will cost to resolve it.

Copyright 2017 Stanley P. Jaskiewicz, Esquire