Generally speaking, due diligence is an audit or review of a company, often conducted by a prospective buyer, with the aim of confirming assets, liabilities and risks as well as commercial potential of the company. Intellectual property (“IP”) assets can play a significant role in the valuation of a potential transaction and understanding the importance and value of IP in general is increasing. Indeed, a key patent could be the main strategic reason behind an entire transaction.
IP Due Diligence Background
Parties considering acquiring a company or which are planning to sell, buy, or license intellectual property, should have a thorough understanding and knowledge of the company’s IP portfolio size, content, coverage, and any potential risks relating to the company’s IP rights now and in the future. An IP portfolio can be very valuable if it strategically focused and properly maintained, but to avoid any pitfalls and overvaluation, it is important to investigate carefully the strength of patents and trademarks or other intangible asset of the company and to check the validity, ownership and coverage of any such right.
Top 10 IP Checklist Considerations (Non-Exhaustive)
The following non-exhaustive checklist of top 10 items includes information a buyer or licensee should obtain from a company when conducting an IP due diligence audit before completing any commercial transaction or IP licensing project.
1. A comprehensive list of all IP rights including at least:
a. Pending applications and granted patents, industrial designs, trademarks, domain names and copyrights or any other related IP.
b. Status report on all pending cases.
c. Copies of documents relating to pending applications and granted IP rights.
d. An up-to-date list of the owners of each IP right.
2. A list of IP assets relating to the company’s technology currently in use, in commerce or licensed, including but not limited to:
a. A report identifying the importance of the technology in question.
b. The list of parties involved in the technology in question or in any licensing matters.
c. The main competitors in the field of the same technology.
3. A list and/or report of all non-registered/non-registerable IP, including but not limited to, trade secrets, know-how and confidential information relating to the company and the effect and added value of these rights to the company’s core business.
4. A list and copies of any agreements, including but not limited to, licenses, co-existence agreements, assignments, R&D agreements, confidentiality agreements and employment agreements.
5. Copies of freedom to operate searches and trademark searches relating to the IP rights listed in point 1.
6. A report including copies of documents relating to any current, past, or potential infringement cases or other disputes or encumbrances concerning any of the IP rights and/or non-registered/non-registerable IP listed in points 1 and 3.
7. A report on the employees of the company including, in particular, information on whether any primary inventors have left the company.
8. A report identifying the geographic territory of the company’s business and a list of goods and services produced by the company in order to confirm the strength of IP rights and/or non-registered/non-registerable IP assets listed in points 1 and 3.
9. A financial report which states the current value of IP assets on the company’s balance sheet, a financial statement of royalties or prior selling of the IP or costs associated with IP prosecution, filings and maintenance of the IP assets listed in point 1.
10. Any other documentation or additional information relating to IP, such as existing IP strategy or description of IP processes and policies of the company that are important to the company and its IP portfolio or any information that may have any effect whatsoever on the valuation of the company and the planned transaction.
The main purpose of the above non-exhaustive checklist is to help a reader/buyer/licensee who is not very familiar with intellectual property to consider several important issues relating to the investigation and valuation of an IP portfolio. Each of the items listed above must be (due) diligently reviewed in order to have an accurate understanding of the real value and potential of the IP portfolio. Listing and systematically analyzing these issues facilitate a proper assessment of the potential transaction.
Nevertheless, it must be noted that this is not a complete list nor should it be considered legal advice as such. Rather, our checklist is for informational purposes only and, of course, does not substitute for obtaining specific legal advice.
But we do want to take this opportunity to wish you and yours, without caveat or reservation, Happy Holidays!
Mika has over 20 years comprehensive IP experience and especially he has focused on IP commercialization. So far he has prepared material and participated in many important patent portfolio licensing or selling projects which have generated significant profit for IP owners (up to hundreds of millions).