Wassem M. Amin, Esq., M.B.A.
During 2010, global dollar volume for announced merger and acquisition deals (“M&A”) rose 23.1 percent to over $2.4 trillion. The United States recorded a 14.2 percent increase in M&A deals over the previous year, accounting for over $822 billion in volume—and fueled in part by aggressive expansion in the energy, power, and health care sectors. Although merger activity has not returned to its peak in 2007—where the United States alone hit a record $1.57 trillion, bringing the global total to $4.5 trillion—the marked increase from 2009 signals a return of confidence in the M&A market.
To complement this steady growth, corporate law practitioners, in structuring M&A transactions, need to be especially vigilant in minimizing transaction risks while concurrently maximizing sustainable value. M&A transactions generate several diverse, complex, and inter-related issues that range from corporate, antitrust, tax, securities laws, and accounting considerations to successor liabilities, management and employee retention issues, and appraisal rights. However, special issues arise, especially in the due-diligence stage, when a practitioner is faced with anti-assignment clauses in pre-existing contractual obligations of the target entity. Anti-assignment clauses, in the M&A context, represent a unique intersection of contract law, corporate law, and, in many situations, intellectual property law. Intellectual property (“IP”) licenses present a unique fourth factor further complicating the possible risks—federal IP law and policy may impact a court’s decision on whether an anti-assignment clause in a license was “triggered,” and, therefore, might preempt conflicting state statutory regulations on M&A transactions and assignment of contracts. Additionally, the applicability of an anti-assignment clause depends on the structure of the M&A transaction—whether it is a stock sale, asset sale, or a forward or backward triangular statutory merger. Unfortunately, case law addressing anti-assignment clauses in M&A transactions has been sparse and, in those few cases, courts have frequently reached inconsistent results, even when addressing the same transaction structure. Litigation usually arises in cases where the anti-assignment clause in a target company’s pre-existing contractual obligation is sufficiently ambiguous to permit various interpretations as to whether the clause was “triggered,” which may render the assignment of the contract from the target to the buyer ineffective.
This report attempts to survey the current state of judicial interpretation of anti-assignment clauses in M&A transactions, focusing on Massachusetts, New York, Delaware and California. Part I will briefly discuss anti-assignment clauses in general and the impact of various clauses within them. Part II will detail the significant differences in the special context of Intellectual Property—Copyright, Patent, or Trademark—licenses and agreements (as opposed to regular contracts such as leases or service contracts) and the impact of Federal IP law on determining the validity of anti-assignment provisions in that context. Part III will give a brief overview on the differences, benefits, and drawbacks between the most frequently used M&A structures and analyze the ambiguity in interpretation and enforceability of anti-assignment clauses between jurisdictions. Specifically, Part III.A will discuss asset sales; Part III.B will discuss stock sales; Part III.C will discuss forward-triangular mergers, and, finally, Part III.D will discuss perhaps the most controversial structure in this context—reverse-triangular mergers.
I. Anti-Assignment Clauses
In contract law, an assignment is a transfer of right to performance to a third party. The transfer extinguishes the transferor’s right to receive performance in whole or in part and gives that right to receive performance to the third-party transferee. The basic rule in modern common law prefers the free transferability and assignment of contracts, except in those that violate public policy or specific statutes prohibiting assignment. Otherwise, parties are freely permitted to transfer contractual rights without obtaining consent from other parties to a contract. Parties wishing to prevent assignment of contracts can include an anti-assignment clause as part of the original contractual obligation. The enforceability of anti-assignment clauses in contracts is recognized in virtually every jurisdiction. When drafted effectively, these clauses prohibit the free transfer of contractual rights and property without the express consent of all the contracting parties. In the M&A context, these clauses enable contracting parties to protect their interests and prevent the non-merging party from becoming contractually obligated to the future acquiring entity. The issue of anti-assignment clauses arises when the target entity—the “seller”—has a pre-existing contract, agreement, or license with a third party and the acquiring entity—the “buyer”—enters into an M&A transaction that transfers the contract to the buyer as part of the deal. If the contract includes an anti-assignment clause and the third party does not consent, issues will arise as to whether that clause was triggered by the merger or acquisition—therefore violating the contract and voiding the assignment. Oftentimes, the contracts in question are very valuable—if not critical—components of the target entity’s operations.
Typical anti-assignment clauses in commercial contracts—such as real estate leases or shareholder agreements—will include the tightly drafted language that address the assignment rights of the parties as well as the effect of a party’s change of control. The inclusion of the “change in control” language effectually forecloses the ability of a contract to be transferred without consent during a merger or an acquisition. Almost every business combination deal will result in a change of control which will trigger that language and, therefore, the anti-assignment clause.
However, when an anti-assignment clause fails to adequately address transfers or assignments and a subsequent merger raises the issue of the clause’s validity, it is important to determine the impact on the parties’ respective rights and obligations. Ambiguities in the language of a contract’s anti-assignment clause which fail to address transfer requirements create uncertainty as to whether a merger would violate the contract’s anti-assignment clause. If the reviewing court determines that the contract was “transferred” or “assigned” in the transaction, the anti-assignment clause will be “triggered.” Courts have determined the transfer of a target company’s contracts to the surviving entity by balancing several factors: (1) the structure and nature of the M&A transaction; (2) state merger statutes and case law—and, in IP licenses, federal common IP law its policies; (3) the language of the anti-assignment clause; (4) the types of contract rights involved; and (5) any equitable considerations that may judicially constitute an “adverse impact” on the non-merging party.
The necessity of assigning contracts from a target company—absent valid consent—to an acquiring company impacts the parties’ ability to successful complete a transaction. Contractual complications, if not discovered and addressed early during the due-diligence process, may lead to irreconcilable differences that can frustrate or completely destroy the deal—or, if not discovered, lead to expensive litigation for the acquiring entity down the road that could result in an injunction, damages, or both.
II. Special Considerations in Intellectual Property (“IP”) Law
Judicial decisions interpreting anti-assignment clauses in IP contracts—such as patent, trademark or copyright licenses—may further impact whether a contract vests from the target entity into the buyer. Intellectual property laws are codified in federal statutes and, due to the Supremacy Clause of the U.S. Constitution, federal preemption doctrines and federal policy of protecting the interests of IP owners can supersede state merger statutes and prevent the transfer of IP licenses to the buyer.  This issue is of particular importance in M&A transactions involving companies, such as those in technology, whose extensive IP portfolios could represent the bulk of the their desirable assets.
In federal IP law, there are several specific considerations to keep in mind. First, when owners of patents, copyrights, or trademarks grant a third party rights to use their work, the license agreement used, generally, is either an exclusive license or a nonexclusive license. Federal IP law treats an exclusive license as equivalent to ownership, because it can only be granted to one licensee; and, therefore, those are freely transferable in a merger without the consent of the licensor. However, non-exclusive licenses are usually not transferable without the consent of the licensor or express language in the license that permits transfer.
Equitable considerations in the IP licenses have also influenced the courts in deciding the applicability of anti-assignment clauses—more so than in other types of contracts. Courts have factored in the “adverse impact” on the third party/licensor by examining: the buyer’s motive in making the acquisition; whether the buyer is a direct competitor of the licensor; and whether the licensor’s commercial interests will be affected by the transfer. Even Judge Richard Posner, a popular proponent of free-market transferability, remarked that, in determining transferability, a key issue is “[w]hether, as a matter of fact, a change in business form is likely to impair performance of the contract.” Case law in this narrow topic indicates that these equitable considerations may be the balance-tipping factor in determining whether an IP license will vest in the buyer, regardless of whether it is an asset sale or a statutory merger. Another key factor is the policy behind federal IP law, which in combination with preemption doctrines, may supersede state merger statutes. Unlike typical contract law, federal courts have held that in the context of intellectual property, a “license is presumed to be non-assignable and nontransferable in the absence of express provisions to the contrary.” This presumption have led courts to hold that “where state law would allow for the transfer of a license absent express authorization, state law must yield to federal common law prohibiting such unauthorized transfers.” As the next section implies, the way the transaction is structured adds yet another piece to this jigsaw puzzle.
III. Types of M&A Structures
Determining the optimal structure of a merger or acquisition is a critical component to the success of the deal. The three principle structures are asset acquisitions, stock purchases, and mergers. Mergers, also known as statutory mergers, are further divided into two structures—forward-triangular mergers and reverse-triangular mergers. The appeal of each structure varies depending on the specific transaction and is impacted by factors such as: business and economic issues, allocation of liabilities, securities and state corporate statutory laws, tax considerations, scope of due diligence required, and the necessity of third-party consents of the target’s pre-existing contractual obligations. Additionally, each of these factors may affect the buyer and seller differently. For example, a structure that may provide tax savings for the buyer may not do so for the seller.
A. Asset Acquisition
In a typical asset acquisition, the buyer specifies certain assets and liabilities of the seller in exchange for the buyer’s cash or stock. The assets acquired and liabilities assumed are specifically outlined in an asset purchase agreement. The advantages of this structure is that it allows a buyer to maximize the value it receives from the acquisition by limiting its exposure to unknown liabilities and acquiring only the assets that are beneficial to it.
i. Anti-assignment clauses in Asset Acquisitions
In asset sale, if a contract containing an anti-assignment or change-of-control provision is part of the transaction, the transfer constitutes an assignment and, absent consent from the third party, will always trigger the anti-assignment clause.
Unlike other structures such as a merger or stock purchase, there is no threshold question as to whether the transaction results in an assignment or a transfer, even if the buyer purchases all of the target’s assets. Courts are unanimous in considering an asset acquisition that includes a contract as an assignment thereof. Therefore, in a typical asset acquisition, the buyer must expressly ask the seller to obtain consent from the third party as a condition to consummation of the deal.
B. Stock Purchase
A stock purchase allows the buyer to negotiate directly with the seller and its shareholders to acquire the seller’s outstanding shares of capital stock directly from the shareholders in return for cash or stock in the buyer’s entity. This allows the target entity to continue operation in its original legal form as before the acquisition—therefore not implicating ownership of its assets, liabilities, and other aspects of the business.
However, a stock purchase can also be less desirable to the buyer than an asset acquisition because usually the buyer cannot exclude unwanted liabilities or/and unwanted assets. Additionally, if the buyer cannot acquire enough stock to trigger a statutory short-form squeeze-out merger—permitted in many states such as Delaware—a stock deal in a corporation with a large number of shareholders can be unfeasible.
i. Anti-assignment Clauses in Stock Purchases
Unlike an asset acquisition, courts have usually held that a transfer of stock ownership does not trigger anti-assignment clauses in the target company’s contracts if there is no “change-of-control” provision. A “change-in-control” clause will trigger an anti-assignment clause in a stock purchase because control of a corporation usually changes post-stock purchase. In a stock purchase deal, ownership of the assets and liabilities is transferred from the target to the buyer but the legal form of the target entity remains the same and, therefore, because the target’s contracts are not being transferred to a new entity, theoretically no assignment or transfer occurs. The rationale is that a change of corporate ownership does not result in change of its contractual responsibilities; nor does it adversely impact the non-merging party because the contract will still be performed under the original bargained-for terms. Similarly, in the IP context, courts have explicitly noted that a change in stock ownership does not violate a non-assignable license.
Adhering to the majority rule, Delaware, in Baxter Pharm. Prod., Inc. v. ESI Lederle Inc., held that an anti-assignment clause, that does not include a change-in-control provision, is not triggered by a stock purchase. The agreement in question stated that “the rights of either party under the Agreement shall not be assigned” without the prior consent of the other party. Notwithstanding the anti-assignment clause, the court explained that the legal definition of an assignment does not include a stock purchase.
Similarly, in an intellectual property context, the First Circuit, in Instiut Pasteur v Cambridge Biotech Corp., held that a non-exclusive patent license was not transferred by the sale of the licensee’s stock, even though the buyer was a direct competitor of the licensor. In other jurisdictions that factor equitable considerations in their decisions, the fact that the buyer was a direct competitor was significant because it was held as constituting a “substantial adverse effect” on the third party, especially in the IP context. However, the First Circuit, in discounting that fact, held that equity was not a factor because “generic nonassignability provisions do not address the circumstances [of a stock purchase].”
However, in another IP license case, equitable factors did play an important role in that determination. In Firstnationwide Bank v. Florida Software Services, Inc., the court—although adhering to the majority rule—arrived at its conclusion using an equitable consideration analysis rather than by application of contract interpretation rules. The court held that an anti-assignment provision was not triggered by a stock purchase because the licensors were not harmed by the transaction and their only motivation in bringing suit was the renegotiation of higher licensing fees. Therefore, although courts have arrived at their conclusion using different rationales, it is safe to assume that a stock purchase transaction will not trigger an anti-assignment clause. However, as the next section explains, that uniformity and certainty in law is not present in the context of the most widely used M&A structures—statutory mergers.
Mergers are usually the codified in state statutes and therefore often called statutory mergers. In a merger, so long as the requisite percentage vote of the target’s shareholders is obtained, the merger will be effected by operation of law. That could be more appealing than a stock purchase in situations where it is unfeasible due to, for example, stockholder hold-outs; or over an asset acquisition because a merger is less likely to trigger anti-assignment clauses in contracts. However, a major drawback of a merger is that entities are less flexible in choosing specific assets and liabilities to acquire, unless the target transfers the unwanted assets or liabilities to a subsidiary before effectuation of the merger.
There two most common types of merger structures: forward triangular merger (a derivative of the “direct merger”), and reverse triangular merger. In either structure, the laws of the states of incorporation of the entities to be merged govern the merger—which could be significant in the interpretation of anti-assignment clauses, as discussed below.
- Common Similarities in All Statutory Mergers
Regardless of whether a merger is a direct, forward triangular, or reverse triangular merger, there are common considerations that apply between them. The threshold issue in determining whether an anti-assignment clause is triggered in either structure depends on whether a transfer or an assignment of the contract in question was effected by the merger. That in turn depends on the language of the clause and judicial interpretation of the governing law. A statutory merger is subject to the buyer’s and seller’s specific state-of-incorporation merger statutes, unless preempted by federal common law in IP cases. These statutes usually shape a court’s outcome in determining whether an anti-assignment clause was triggered in a merger.
The majority of state merger statutes, including New York and Delaware, are modeled after §11.07(a) of the Model Business Corporation Act (“MBCA”), which states: “[w]hen a merger becomes effective . . . all property owned by, and every contract right possessed by, each corporation or eligible entity that merges into the survivor is vested in the survivor without reversion or impairment.” The implication is that this language—indicating that rights vest in the survivor—gives courts the discretion in determining whether the contractual language in a specific anti-assignment clause can be interpreted to apply to the type of merger at issue. California models its merger statute after an older version of the MBCA, which states: “[t]he surviving corporation shall succeed, without other transfer, to all the rights and property of the disappearing corporations.” However, even in jurisdictions that employ virtually the same statutory language, courts have arrived at contradictory results in the interpretation and application depending on the type of contract.
Additionally, in both statutory merger structures, even if a non-exclusive license is silent on assignment, federal patent and copyright law may prohibit the transfer absent the express consent of the licensor. Federal IP law equates intellectual property to a personal service contract and, therefore, courts apply a general presumption against assignment. This presumption has influenced courts in the corporate merger context—even when, the same courts, in the same merger structure, previously held an anti-assignment provision in other types of contracts inapplicable.
Forward Triangular Merger
In either of the triangular merger structures—forward or reverse—a subsidiary is established to effectuate the merger. The main benefit of using a subsidiary is that it does not require approval from the buyer’s stockholders because the buyer is the sole stockholder of the acquisition subsidiary. In a forward triangular merger, the target entity merges into the buyer’s subsidiary, extinguishing the target entity with the subsidiary emerging as the surviving company. Because the target entity ceases to legally exist and, thus, a change in legal form occurs, courts have generally, but not always, held that a transfer or assignment occurs—thereby triggering an anti-assignment clause.
Anti Assignment Clauses in Forward-Triangular Mergers
As indicated, analyzing the threshold issue of whether a transfer or occurs is different in a forward triangular merger because the surviving entity is not in the same legal form as the original target entity that was a party to the contract. In a forward triangular merger, the presumed general rule is such a structure will trigger—and, therefore, violate—an anti-assignment clause in a contract because there is a change in the legal form of the target entity. However, it is important to note that there are limited circumstances where courts have held that a forward merger does not constitute a transfer or assignment.
For example, in real estate leases, many jurisdictions do not treat a forward triangular merger as an assignment or transfer that triggers a generic anti-assignment clause. A New York Court in Brentsun Realty Corp. v. D’Urso Supermarkets, Inc., held that a forward merger between a tenant corporation and its parent corporation did not trigger an anti-assignment clause in a lease because it was not a transfer or an assignment. As indicated, it seems that this exception to the general rule is limited to the context of real estate commercial leases where the original performance of the lease is not affected.
Outside the real estate context, in merger statutes modeled after the MBCA, courts have held that the “vesting” language in the statutes does trigger and violate an anti-assignment clause in a contract, especially in intellectual property licenses. A leading example is the Sixth Circuit’s interpretation of Delaware and Ohio merger statutes in PPG Industries v. Guardian (“PPG Industries”), where it enforced an anti-assignment provision in a non-exclusive patent license as applied to a forward triangular merger.
PPG Industries is perhaps one of the most cited cases construing forward triangular mergers and anti-assignment clauses. It also illustrates the unique impact of federal intellectual property law in this context. In this case, the licensee under a non-exclusive license merged with a competitor of the licensor. The Sixth Circuit, in holding that the merger did constitute a transfer and thereby violated the anti-assignment clause, applied federal common law in reaching its holding, but also indicated that Delaware’s statutes would have reached the same result. The court stated that federal law has long held that patent licenses are not assignable unless expressly made so. In addressing equitable considerations under federal IP law, it also stressed that the adverse impact of the merger on the licensor tilted the balance towards its holding. The PPG Industries holding has been cited approvingly by other courts to support the nonassignability of copyright and trademarks licenses in mergers and also in the bankruptcy context. However, the court in PPG Industries was careful to limit its holding to apply only to forward triangular mergers and distinguish it from a previous case where no assignment of a patent license was found in a reverse triangular merger. Therefore, the PPG Industries holding stands for the general proposition that a forward triangular merger, because it results in a change in legal form of the surviving entity, will usually trigger an anti-assignment clause.
In a nontechnology context, the Seventh Circuit reaffirmed the majority rule on forward triangular mergers. In Sally Beauty Co. v. Nexxus Products, Co., the Seventh Circuit declined to allow the buyer in a forward merger transaction to be able to assume an exclusive distribution rights contract held by the target entity—even though the agreement was silent on assignment. The court under-emphasized common law contract rules which favor free transferability and instead applied equitable principles articulated by the Uniform Commercial Code that bar assignment if performance would be “substantially different than . . . what was bargained for.” This holding signifies judges’ increasing reliance on equitable principles, regardless of the merger structure, in determining the significance of anti-assignment clauses.
Nevertheless, at least one jurisdiction has expressly diverged from the PPG Industries rule. Most notably, the Texas Court of Civil Appeals, in TXO Productions v. M.D. Mark, Inc., held that a non-assignable license to use proprietary data was not transferred by operation of a forward merger and, thus, the anti-assignment provision was not triggered. The Texas court expressly rejected PPG Industries and also rejected federal IP common law prohibiting the assignment of a non-exclusive license. Of significant importance in the outcome was the state-merger statute’s language expressly dictating that a merger takes effect without triggering any transfer or assignment in pre-existing contracts. In drafting the statute, the legislature specifically cited the outcome in PPG Industries as what the language was designed to prevent. Presently, the holding seems like an outlier but it may be significant in a merger involving a Texan company.
Reverse Triangular Mergers
In a reverse triangular merger, the buyer’s subsidiary merges with the target entity, with the target entity emerging as the surviving company—without a change in its original legal form. The buyer, through the subsidiary, becomes the owner of the merged entity with consideration paid to the target stockholders in the form of cash, securities, or a combination thereof.
Anti-Assignment Clauses in Reverse Triangular Mergers
Triangular mergers pose a special risk in the triggering of anti-assignment clauses. As evidenced in the previous section, both forward and reverse triangular mergers have been found to constitute a transfer, and case law in the area has been contradictory. However, unlike forward triangular mergers, reverse triangular mergers have long been thought to prevent the triggering of anti-assignment clauses. The rationale was that reverse triangular mergers only change the ownership of a company, not the legal form of the entity; and, therefore, the original party to the contract (the target entity) remained the same—as in the case of a stock purchase. However, a survey of several jurisdictions evidences the inconsistent interpretations by states regarding the enforceability of anti-assignment clauses in reverse triangular mergers. Recent case law has also signaled that jurisdictions such as Delaware are not willing to treat reverse triangular mergers as preventing the trigger of anti-assignment clauses. The ambiguous treatment of anti-assignment clauses in triangular mergers has resulted in contradictory guidance from courts on this critical issue.
In a widely criticized decision, the U.S. District Court for the Northern District of California, in SQL Solutions v. Oracle Corp., held that a reverse triangular merger constituted a fundamental change in ownership and thus a transfer occurred, triggering the anti-assignment provision. In SQL Solutions, the M&A transaction was structured as a typical reverse triangular merger where the licensee—the target entity—merged with a wholly owned subsidiary of a direct competitor of the licensor, with the original licensee emerging as the surviving entity. However, in its analysis, the California court did not distinguish between forward and reverse mergers; but instead relied on federal IP common law’s policy prohibition the assignment of licenses and underlying equity principles. In doing so, the court held that the reverse merger was a change in the form of legal ownership and Oracle, the licensor protected by the anti-assignment clause, would be “adversely impacted” if the license was held by SQL—a direct competitor.
The SQL Solutions decision is subject to criticism on several grounds. Primarily, the Court relied on California Supreme Court precedent established in Turbowitch v. Riverbank Canning Company, which held that “if an assignment results merely from a change in legal form of ownership of a business, its validity depends upon whether it affects the interest of the parties protected by the nonassignability of the contract.” However, in Turbowitch, the transaction was not a reverse triangular merger—it was in the context of a corporate dissolution and subsequent formation of a partnership—and the court actually permitted the transfer, or assignment, of the contract in question. For many years, practitioners assumed that California’s rationale would not be applicable in other jurisdictions and was partially based on the specific facts and equities of the case—such as the fact that SQL and Oracle were direct competitors. However, a recent Delaware court decision in April 2011 might lead to the rethinking of this assumption.
Meso Scale Diagnostics v. Roche and its Implications
In a case of first impression, the Court of Chancery in Delaware, in Meso Scale Diagnostics v. Roche, refused to hold that a reverse triangular merger does not violate an anti-assignment clause. The facts in this case may contribute to understanding the court’s rationale. In spring 2007, Roche acquired a company called Bioveris in a reverse triangular merger. Originally, Bioveris had been formed as a spin-out from a company called IGEN when IGEN was being acquired by Roche. IGEN was a joint-venture partner of Meso Scale Technologies and the joint venture entity was called Meso Scale Diagnostics, the two plaintiffs in this litigation. As part of the spin-out of Bioveris, IGEN transferred some intellectual property to Bioveris, while retaining a license to that specific intellectual property. All of the parties in the transaction—Roche, Bioveris, Meso Technologies (“MST”), and Meso Diagnostics (“MSD”)—consented to the license and transfer in a “Global Consent and Agreement,” which also included an anti-assignment provision. When Roche acquired Bioveris and made it a wholly owned subsidiary, MST and MSD sued, contending that Roche breached the anti-assignment provision in the original agreement by not obtaining its consent before the merger. Notably, the anti-assignment provision prevented assignment “by operation of law or otherwise” by any of the parties without prior consent from the others.
Roche, in seeking summary dismissal of the case, argued that the reverse triangular merger does not constitute an assignment by operation of law or otherwise because it is more analogous to a stock purchase—as was previously assumed in Delaware. However, in denying summary dismissal, the Delaware court refuted that assumption and concluded that the contrary interpretation advanced by MST and MSD was not unreasonable. Although the court indicated that reverse triangular mergers are, indeed, more similar to a stock purchase and acknowledged the majority rule that generally anti-assignment provisions are not triggered in those M&A structures, the court seemed to be impacted by the specific facts—and equities—of the case. Namely, it referenced the fact that Roche, shortly after its acquisition of Bioveris, laid off the 200 employees at Bioveris, closed their office, and discontinued their product line. Therefore, the court found merit in the allegation that the change was more than “just a mere change in ownership.”
The impact of the Delaware court’s decision is yet to be seen. However, in explicitly refusing to announce a general rule that a reverse triangular merger, which technically is just a change in ownership, does not constitute an assignment, it may have implicitly held that a reverse triangular merger may constitute an assignment. More importantly, the Delaware court, by examining the facts of the case, seemed to be adopting the growing trend of applying equitable principles to an anti-assignment analysis. The implication is that applying equitable principles, which are highly fact specific, present a greater risk in structuring M&A transactions as opposed to general rule that could be easily implemented by practitioners.
On the other hand, the court may not have had such broad implications in mind. It is important to note that this was a ruling on a 12(b)(6) summary-judgment motion, where a court simply needs to decide whether the plaintiff’s argument is plausible, and not whether their interpretation is correct. In other words, the court in Delaware merely decided that the plaintiff may have a reasonable argument and denied the motion on that basis. Additionally, the Court expressly discounted the SQL Solutions holding and rationale—which was advanced by the plaintiffs—and in doing so noted that the case was decided under California’s merger statute and, significantly, that “the [SQL Solutions] court’s reasoning is open to question.” This further implies that Delaware is not willing to adopt the radical shift in SQL Solutions.
Given the significant costs associated with M&A transactions and the potentially valuable contractual rights implicated by anti-assignment clauses, it is frustrating that the law in the area remains unsettled. In addition to the diverse legal issues raised by an M&A, increased due diligence must be given to ensure that the assignment of contractual rights does not violate an anti-assignment clause in that contract. Notwithstanding the structure used, practitioners on opposing sides of any M&A transactions must carefully provide a detailed due diligence schedule that explicitly lists all active contracts and any associated anti-assignment provisions. It is no longer safe to assume that a specific merger structure may provide protection against “triggering” an assignment clause. If consent cannot be obtained, judicial interpretation of equitable factors, such as any potential adverse impact on the third party to the contract as a result of the transfer, as well as the respective state merger statutes must be carefully considered. Further, in licenses dealing with IP rights, federal IP law and policy must be factored in to evaluate its impact on transferability. Despite the potential for increased costs associated with the more extensive due diligence, it is a necessary measure to insure against future litigation for the buyer and to detect any “red flags” that may significantly decrease the value of an M&A transaction.
 See id (giving some examples of the largest deals in 2010 such as the $3.2 billion acquisition of Atlas Energy by Chevron, among others).
 See Merced & Cane, supra note 1.
 See Peter Macaulay, Note, The Effects of Mergers on Anti-Assignment Provision in Contracts: A Case Note on TXO Production Co. v. M.D. Mark, 53 BAYLOR L. REV. 489, 489–90 (2001).
 See Daniel R. Mitz, et. al., License Agreements in Merger Transactions: Why Licenses May Not Vest in the Surviving Entity, 9 No. 2 M&A Law. 12 (2005).
 See Elaine D. Ziff, The Effect of Corporate Acquisitions on the Target Company’s License Rights, 57 Bus. Law. 767 (2002).
 See Restatement (Second) of Contracts § 317(1) (1981); see also Commonwealth v. Power, 420 Mass. 410, 421 n.8, 650 N.E.2d 87, 93 (1995), cert. denied 516 U.S. 1042 (1996) (quoting Black’s Law Dictionary 118 (6th ed. 1990)).
 Restatement, supra note 10, see Bank of Cave Spring v. Gold Kist, Inc., 173 Ga. App. 679, 680, 327 S.E.2d 800, 802 (1985).
 A public policy example is the prohibition of assignment of tort claims to third parties. See, e.g., Lingel v. Olbin, 98 Ariz. 249, 253, 8 P.3d 1163, 1167 (2000) (prohibiting the assignment of personal injury claims). An example of a statue that expressly prohibits assignment is the Anti-Assignment Act, which prohibits the assignment of claims against the United States. 41 U.S.C. § 15 (2006).
 See Allen, Validity of Anti-Assignment Clause in Contract, 37 A.L.R.2d 1251 (1954), for a list of states holding anti-assignment clauses enforceable.
 See Note, Effect of Corporate Reorganization on Nonassignable Contracts, 74 Harv. L. Rev. 393, 394-95 (1960).
See generally 1 LOU R. KLING & EILEEN NUGENT-SIMON, NEGOTIATED ACQUISITIONS OF
COMPANIES, SUBSIDIARIES AND DIVISION § 1.02 (1992)
 Baxter Healthcare Corp. v. O.R. Concepts, Inc., 69 F.3d 785, 788 (7th Cir. 1995); see Branmar Theatre
Co. v. Branmar, Inc., 264 A.2d 526, 528 (Del. Ch. 1970) (stating absent a change in control provision, transfer of stock of lessee ordinarily does not violate anti-assignment provision).
 See infra Part III (discussing the conflicting nature of judicial interpretation in the interpretation of anti-assignment clauses).
 See generally Alan Schwartz & Robert E. Scott, Contract Theory and the Limits of Contract Law, 113 YALE L.J. 541 (2003).
 The acquirer will be left with the option of either: (1) accepting the litigation risk of not renegotiating the original license, (2) terminating the acquisition, or (3) dropping the license from the acquisition. The obvious inferiority of either of these options will give the licensor significant leverage in negotiations. The acquirer is also likely working under considerable time pressure. See generally LEIGH L. THOMPSON, THE MIND AND HEART OF THE NEGOTIATOR (4th ed. 2009) (2001).
 In SQL, federal copyright law and policy, among other things, preempted the state merger statute, and the court ruled that the license did not vest in the surviving entity, regardless of the kind of merger. SQL Solutions, 1991 U.S. Dist. LEXIS 21097.
 Trademark licenses, whether exclusive or non-exclusive are treated differently from patents and copyrights. Federal IP law does not treat exclusive trademark licenses as equivalent to ownership. The complex and unique nature of trademark licenses render it outside the scope of this paper.
 See, e.g., In re CFLC, Inc., 174 B.R. at 121; Gilson v. Republic of Ir., 787 F.2d 655, 658 (D.C. Cir.
1986); PPG Indus., Inc. v. Guardian Indus. Corp., 597 F.2d 1090, 1093 (6th Cir. 1979); Unarco Indus., Inc. v. Kelley Co., 465 F.2d 1303, 1306-07 (7th Cir. 1972); Verson Corp. v. Verson Int’l Group PLC, 899 F. Supp. 358, 363 (N.D. Ill. 1995); see also Ziff, supra note 9, at 774.
 Ziff, supra note 9, at 767.
 Sally Beauty Co. v. Nexxus Products Co., 801 F.2d 1001, 1008 (1986) (Posner, J., dissenting)
 Cincom Sys., Inc. v. Novelis Corp., 581 F.3d 431, 436 (6th Cir. 2009) (quoting PPG, 597 F.2d at 1095).; see also, e.g., Harris v. Emus Records Corp., 734 F.2d 1329, 1335 (9th Cir. 1984) (holding that “copyright licenses cannot be transferred without explicit authorization in the agreement”); PPG Industries, Inc. v. Guardian Industries Corp., 597 F.2d 1090, 1093 (6th Cir. 1979) (“[i]t has long been held by federal courts that agreements granting patent licenses are personal and not assignable unless expressly made so); Unarco Industries, Inc. v. Kelley Co., 465 F.2d 1303, 1306 (7th Cir. 1972), cert. denied, 410 U.S. 929 (1973) (“The long standing federal rule of law with respect to the assignability of patent license agreements provides that these agreements are personal to the licensee and not assignable unless expressly made so in the agreement.”).
 Cincom, supra note 28, at 1335.
 See generally The Mechanics of an Acquisition (Class Handout).
 see generally 4 J. THOMAS MCCARTHY, MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 25:33, at 25-68 (4th ed. 2001) (“[A] person who buys the business of a trademark licensee does not automatically obtain thereby the right to continue use of [the licensed marks].”).
 See Eric H. Wang, M&A Structures and Considerations in Corporate Law and Practice Course Handbook Series (2011).
 PPG Indus. v. Guardian Indus. Corp., 597 F.2d 1090, 1096-97 (6th Cir. 1979); see also Transamerica Commercial Fin. Corp. v. Stockholder Sys., Inc., No. 89 C 917, 1990 WL 186088, at *2 (N.D. Ill. Nov. 8, 1990); Baxter Pharm. Prods., Inc. v. ESI Lederle, Inc., Civ. Act No. 16863, 1999 Del. Ch. LEXIS 47, at *16-*18 (Del. Ch. Mar. 11, 1999)
 See Mechanics of an Acquisition, supra note 30.
 Baxter Healthcare Corp. v. O.R. Concepts, Inc., 69 F.3d 785, 788 (7th Cir. 1995); see Branmar Theatre
Co. v. Branmar, Inc., 264 A.2d 526, 528 (Del. Ch. 1970) (stating absent fraud, transfer of stock of lessee ordinarily does not violate anti-assignment provision); PPG Indus. v. Guardian Indus. Corp., 597 F.2d 1090, 1096-97 (6th Cir. 1979); see also Transamerica Commercial Fin. Corp. v. Stockholder Sys., Inc., No. 89 C 917, 1990 WL 186088, at *2 (N.D. Ill. Nov. 8, 1990); Baxter Pharm. Prods., Inc. v. ESI Lederle, Inc., Civ. Act No. 16863, 1999 Del. Ch. LEXIS 47, at *16-*18 (Del. Ch. Mar. 11, 1999); Review Directories, Inc. v. McLeodusa Publ’n Co., No. 1:99-CV-958, 2001 U.S. Dist. LEXIS 9807, at *9 (W.D. Mich. July 9, 2001).
 Del. Gen. Corp. Law § 251.
 See Baxter Pharm. Prods., supra note 36.
 Civ. Act No. 16863, 1999 Del. Ch. LEXIS 47 (Del. Ch. Mar. 11, 1999)
 104 F.3d 489 (1st Cir. 1997).
 See infra Part III.C-D.
 Intuit, 104 F.3d at 494.
 Firstnationwide Bank v. Florida Software Services, Inc., 770 F.Supp. 1537, 1541 (M.D.Fla.1991).
 A direct merger could mean a transaction in which the buyer merges directly into the seller without the use of a subsidiary, or vice versa, with a new entity surviving after the merger. However, this paper will focus on the two most popular, forward and reverse triangular mergers, both of which are structured through a subsidiary.
 See Philip M. Haines, The Efficient Merger: When and Why Courts Interpret Business Transactions to Trigger Anti-Assignment and Anti-Transfer Provisions, 61 Baylor L. Rev. 683 (2009).
 See, e.g., 8 Del. Code. Ann. tit. 8, §259(a) (2002); N.Y. Bus. Corp. Law § 906(b)(2) (McKinney Supp. 2001) (the New York merger statute, provides, in relevant part, that when a merger has been effected, “[a]ll the property, real and personal, including subscriptions to shares, causes of action and every other asset of each of the constituent entities, shall vest in such surviving … corporation without further act or deed.”).
 Mod. Bus. Corp. Act Ann. §11.07(a)(3) (1984) (includes modifications through 1999). The official comment to the act includes the following note: “A merger is not a conveyance, transfer, or assignment . . . It does not give rise to a claim that a contract with a party to the merger is no longer in effect…”
 Cal. Corp. Code §11.07(a) (2003). California models its statute after the 1969 version of the MBCA. See Mod. Bus. Corp. Act Ann. §76(d) (1969) (includes modifications through 1981).
 PPG Industries, 597 F.2d at 1090.
 Jay Dratler, Jr., Licensing of Intellectual Property, §1.06[b] (2004).
 See, e.g., Star Cellular Tel. Co. v. Baton Rouge CGSA, Inc., Civ. A. No. 12507, 1993 WL 294847, at *10-*11 (Del. Ch. Aug. 2, 1993), aff’d sub. nom. 647 A.2d 382 (Del. 1994) (finding a merger involving general partner and its sibling corporation did not violate an anti-transfer provision in a partnership agreement because the acquiring entity was closely identified with the target company in terms of the nature of its business and its officers and directors); see also TXO Production Co., 999 S.W.2d at 143 (holding merger of subsidiary into parent did not violate anti-assignment clause in nondisclosure agreement).
 582 N.Y.S.2d 216, 217 (App. Div. 1992).
 597 F.2d 1090, 1094 (6th Cir. 1979).
 See SQL Solutions v. Oracle Corp., No. C-91-1079 MHP, 1991 WL 626458, at *4 (N.D. Cal. Dec. 18,
1991) (regarding copyright license); Council of Better Bus. Bureaus, Inc. v. Better Bus. Bureau, Inc., No.
99-CV-282, 1999 WL 288669, at *3 (N.D.N.Y. Mar. 30, 1999) (regarding a trademark license).
 See PPG Indus., Inc. v. Guardian Indus. Corp., 597 F.2d 1090, 1094 (6th Cir. 1979) (distinguishing
Hartford-Empire Co. v. Demuth Glass Works, Inc., 19 F. Supp. 626 (E.D.N.Y. 1937)). Although the PPG Industries court assumed that Hartford-Empire Co. involved a reverse merger, it is difficult to determine from the actual opinion whether the merger of the licensee in that case was, in fact, a reverse or forward subsidiary merger. The decision notes, ambiguously, that the companies merged under the same name as the licensee but that assets of the old company, including the patent license, were conveyed to the new company. See id. at 627.
 Sally Beauty Co. v. Nexxus Products Co., 801 F.2d 1001 (7th Cir. 1986).
 TXO Productions v. M.D. Mark, Inc., 999 SW2d 137 (Texas 1999).
 See Glen A. Kohl & Lea Anne Storum, M&A Double Take: Why Two Mergers are Better than One, 5 M&A LAW. 1, 2–3 (2002) (acknowledging the popularity of a reverse triangular merger structure to avoid the extra consents and resulting delays that other business combinations might entail). See generally DALE A. OESTERLE, MERGERS AND ACQUISITIONS 25 (2006) (triangular mergers in general have become a very popular form of merger); Robert Willens, Flexibility of Reverse Mergers Increased by Regulations and Rulings, 70 J. TAX’N 52 (1989).
 1991 U.S. Dist. LEXIS 21097, at *1 (N.D. Cal. Dec. 18, 1991).
 Trubowitch v. Riverbank Canning Co., 30 Cal.2d 335, 344-345 22 (Cal. 1947).
 Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, C.A. No. 5589-VCP (Del. Ch. Apr. 8, 2011).