A website consists of many individual files, some of which contain program code, but also design or content elements such as texts, style sheets, photos and videos. Contents are usually protected by copyright. If the website represents the main asset of the target company, the due diligence must address the question of whether the target company is entitled to the comprehensive rights to the individual parts of the website.
The following example illustrates the issue: Assuming that the target company has commissioned an advertising agency to create a website. The advertising agency has several employees who take care of and create the layout and various contents of the website. The target company only acquires comprehensive rights of use to the website if these have been granted to the target company by the advertising agency. This in turn requires that the employees of the advertising agency, as the creators, have granted the advertising agency comprehensive rights of use to the individual parts of the website.
Section 69b of the German Copyright Act provides that the employer is entitled to all proprietary rights to those computer programs that an employee has created in the performance of his duties or in accordance with the instructions of his employer. However, the privilege of section 69b of the German Copyright Act is applicable to websites only to a very limited extent. Computer programs can be defined in simplified terms as a sequence of commands that cause a PC to perform a certain function. For example, JAVA applets and PHP scripts qualify as computer programs because they contain control commands. Web pages created in HTML or XML, on the other hand, do not qualify as computer programs, since these are merely descriptive languages that do not control the execution of a program. The same applies to graphics, editorial texts or multimedia content. The majority of a website is therefore not a computer program within the meaning of section 69b of the German Copyright Act.
As a result, a company only acquires comprehensive rights to the website if the rights have been expressly granted to it. Although such a grant of rights can also be implied, the so-called “purpose of transfer doctrine” must be observed. According to this doctrine, the principal is only granted those rights that are required for the contractual purpose at the time the contract is concluded. If, for example, a web design is ordered, the granting of rights does not also include the use of the design for letterheads or other printed matter.
It is therefore necessary both to grant comprehensive rights in the employment agreements between the advertising agency and its employees and in the agreement concerning the creation of the website between the advertising agency and the target company. In the due diligence, at least the agreement between the advertising agency and the target company must be examined in detail for effective IP clauses. If the website is essential for the business operations of the target company, a corresponding guarantee should be included in the share purchase agreement that the target company is entitled to the rights to use the website.
Another issue in connection with websites that requires attention in the due diligence is the ownership of domain names.
Computers identify themselves to each other by means of purely numerical IP addresses. For the convenience of human users, an additional addressing method has been developed, the so-called domain name system. This allows words to be used instead of numbers for addressing. The words used form the domain name. A domain name thus identifies a computer on the Internet. The so-called registries or registrars, such as DENIC for the top level domain .de, administer the so-called second level domains, i.e. in the case of DENIC the domain components before the .de. These registries keep a register in which they enter the holders of the second-level domains.
For reasons of data protection, it is no longer possible to look up the ownership of a domain in the registers, at least in the case of Top Level Domains administered by European registries. At DENIC, however, it is possible for the domain holder to have a link sent to the e-mail address deposited with DENIC. This link enables the domain holder to inspect the registry entry for the domain in question for a period of 48 hours. In the due diligence this can be used in such a way that the target company is asked to request appropriate links from DENIC for the domains whose ownership it claims, with the help of which the purchaser’s advisor then gains access to the register data.
Alternatively, a screenshot from the domain administration at the provider is often provided in the due diligence. However, this usually does not show the name of the domain holder. The screenshot therefore only provides evidence that the domain is registered and that an employee of the company obviously has access to the domain administration. It is therefore advisable for the purchaser to have the domain ownership of the target company guaranteed in the share purchase agreement.
If it turns out during the due diligence that the target company is not the registered owner of all domains used, the corresponding domains must be transferred to the target company before closing.
The ownership of a domain does not represent an absolute right, rather it is a property right consisting of the entirety of the claims under the law of obligations to which the owner of the domain is entitled vis-à-vis the registry under the contract concluded between the two parties. Thus, when a domain is transferred, it is not the domain itself that is transferred, but only the legal relationships under the law of obligations between the registry and the former holder are transferred to the new holder. Legally, this is therefore a transfer of contract.
It is recommended, if the website is essential for the business operations of the target company, to make the registration of the target company as the domain holder in the register of the registry as a closing condition in the share purchase agreement.
Increasingly, companies also have social media representations, for example on Facebook, YouTube or Instagram. If they have succeeded in gaining a certain number of “followers”, the social media representations can represent an essential component of a company’s advertising strategy. Therefore, care should be taken to ensure that the respective social media representations are managed in the name of the target company and that the access data is kept safe by the target company. It is recommended to include a corresponding guarantee in the share purchase agreement.
In addition, the social media representations of the target company and also statements by third parties about the target company can provide valuable information which can be used as a basis for the due diligence. Negative reports or comments by third parties, e.g. former employees, can be particularly informative. Finally, attention should also be paid to whether trade secrets have been disclosed in the social media channels.
After the transaction has been carried out, the social media representations of the target company can make a significant contribution to post-merger integration, particularly with regard to the public depiction of the transaction.