There was an interesting article in Corporate Counsel about Facebook’s recent $2B acquisition of Oculus, and how due diligence was done literally “over a weekend.” This came to light with a lawsuit by ZeniMax Media, Inc., originally against Oculus, and now against Facebook. The suit states that Oculus had misappropriated trade secrets and violated copyright laws, among other allegations, and that Facebook knew of the allegations when they purchased Oculus. Facebook clearly has deep pockets, and ZeniMax was suing for $4B in damages.
During the hearing, the lawyer for ZeniMax, P. Anthony Sammi, asked Mark Zuckerberg about doing legal due diligence over the weekend. When Zuckerberg confirmed that this was in fact the plan, Mr. Sammi reportedly responded with the comment, “It takes longer than that to inspect a house.” The suit was settled February 1st, and Facebook was ordered to pay $500M in damages to ZeniMax for violation of their NDA. Facebook has indicated they will appeal.
This is a great example of rethinking the question of how long it does take to do effective due diligence? The standard answer is weeks at a minimum to months to ensure all legal risk and exposures is identified. This is especially true in a deal where intellectual property is a key component. Had Facebook clearly seen the legal risk associated with ZeniMax in their due diligence of Oculus, would the deal have changed? Hard to say, but a weekend to do due diligence usually cannot catch much of anything.
The big difference is when technology is applied to the process, and when an organization has their contract house in order. When this is the case, there is no reason that the information important for the due diligence process cannot be surfaced through a couple of clicks or a quick set of example language fed through a machine learning tool. We find that organizations that have contract analytics software platform like Seal in place, can find almost any piece of information they need within their contract portfolio within a 24-hour period. If the standard is weeks to months, imagine being able to extract critical contract information in 24 hours. This is a game changer for due diligence work!
How do you do it? The concept is quite simple, with the key step being preparation. Most organizations know that there will be a business, regulatory or market event(s) that eventually will impact them is some way. By loading all of your contracts into a contract analytics platform like Seal, you can prepare for such an event by pre-staging the extraction of critical information and have it available for query on demand. Sorting through all your contracts looking for proof of compliance, or liability and risk is as simple as running a standard search.
The first step is to buy and install the software. Then let the software ingest all your contracts and ancillary documents and it will automatically begin to extract information. If you don’t know where all your contracts are located, don’t worry. The software just needs to be pointed at the drives where you think they’re ‘living’ and it will pull them in for you.
What if you don’t know what information you’ll need from them in the future? Don’t worry about that either. Very few people can credibly predict the future no matter what some reality TV shows demonstrate. The software allows you to be both proactive and reactive.
See a regulatory change coming? Teach the software to find the information you’ll need in order to respond.
Have to find all the IP language in your contracts, over a weekend for due diligence? Teach the software what you’re looking for and allow it to do the heavy lifting by sorting the relevant from the irrelevant. This allows the highly-paid lawyers to focus only on the information necessary to provide advice as to the value and risk of the deal.
Need to present the findings to the board? Not a problem. Run the results through a business intelligence tool and you’ll have all those sexy graphs, charts and dashboards that will make it look like you have your house in order!
Having your contracts housed in a contract analytics platform not only allows you to quickly and easily surface critical information across all your contracts, but it also allows you the flexibility of handling events that will occur in the future in a matter of hours, not days or weeks.
With technology, you can now do the due diligence for a $2B deal in a weekend and have peace of mind that there are very few stones unturned. Investment in technology produces significant long term gains. With Seal, instead of being questioned about his unrealistically short due diligence process, Mr. Zuckerberg could have confidently said it only took 24 hours, and they knew every aspect of IP ownership, risk and liability from the entire portfolio of contracts coming in with Oculus. That would have turned Mark Zuckerberg’s “virtual reality” — into reality.