The Importance of Due Diligence for Intellectual Property

February 2023

Introduction:

In today's business landscape, intellectual property (IP) has become a valuable asset for many companies. With the rise of technology and innovation, IP has become increasingly critical in maintaining a competitive edge. This is especially true during a merger or acquisition (M&A) transaction, where the value of a company's IP can significantly impact the deal's success.

Conducting IP due diligence during M&A is crucial to identify potential risks as well as potential opportunities associated with a company's IP assets. 

Due diligence helps safeguard the company's IP and minimize any potential liabilities. Additionally, it can help identify opportunities to expand the brand's reach and create new revenue streams.

In this article, we will discuss ten ways IP due diligence can help maximize the value of your Kentucky business during an M&A transaction. 

By understanding the significance of IP and its role in M&A, you can make informed decisions and ensure the long-term success of your business.

1. Identify Intellectual Property Assets:

This step involves identifying all the IP assets of the target company, including patents, trademarks, copyrights, and trade secrets. It is crucial to clearly understand these assets' ownership, validity, and scope.

2. Verifying intellectual property (IP) ownership is a critical aspect of due Diligence in M&A transactions. 

Verify Ownership: It is essential to verify the ownership of the IP assets and ensure that the target company has the right to use and license those assets. Here are some steps you can take to verify ownership:

● Review Government Databases: A good starting point is to review the government databases such as the United States Patent and Trademark Office (USPTO), the United States Copyright Office, and the World Intellectual Property Organization (WIPO) to ensure the accuracy of the registration details.
● Review Ownership Records: Ownership records, including contracts, licenses, and assignments, should be reviewed to verify who owns the IP and to confirm that ownership has not been transferred without authorization.
● Conduct Interviews: Conducting interviews with the key stakeholders, including inventors, employees, and legal counsel, can help to confirm the ownership and chain of title of the IP.
● Check Chain of Title: The chain of title should be checked to ensure a clear line of ownership from the original owner to the current owner.
● Search Public Records: Public records such as court filings, corporate filings, and tax records can provide additional information about IP ownership.
● Investigate Third-Party Rights: Investigate any third-party rights in the IP, such as licenses, assignments, or liens.
● Verify Assignment and Recordation: If there has been an IP assignment, verify that the assignment was executed correctly and recorded with the appropriate government agency.
By thoroughly investigating these steps, you can verify the ownership of the IP assets and minimize the risks associated with the transaction. It is recommended that you engage the services of an experienced IP attorney to ensure that the due diligence process is conducted accurately and efficiently.

Read: Due Diligence What Does It Mean To The Seller?

3.Review Licenses and Agreements: 

Reviewing the licenses and agreements related to the IP assets can help identify any limitations on using those assets and uncover potential liabilities.

4.Evaluate the Strength of IP Assets:

 Assessing the strength of IP assets can help determine their value and the potential for future revenue generation. Evaluating the strength of intellectual property (IP) assets is part of due diligence in M&A transactions. The strength of IP assets can significantly impact their value and the potential for future revenue generation. Here are some steps you can take to evaluate the strength of IP assets:

● Review the Registration: Reviewing the registration of the IP assets can help determine the validity and scope of the IP rights. You should check if the IP is registered in relevant jurisdictions and if the registration is up-to-date.
● Conduct a Search: A search of the relevant patent, trademark, and copyright databases can help identify any similar IP assets that may affect the value of the IP assets in question.
● Evaluate the Competitive Landscape: Understanding the competitive landscape can help determine the potential for revenue generation from the IP assets. Analyze the target company's competitors and their IP assets to determine the strength and value of the IP assets in question.
● Review the Market: Understanding the market and the target audience can help determine the potential for revenue generation from the IP assets. You should assess the target company's position in the market and the potential for future growth.
● Assess the Commercialization Potential: The commercialization potential of the IP assets should be evaluated to determine the potential for revenue generation. Analyze the target company's current and future commercialization strategies and the potential for licensing or selling the IP assets.
● Determine the Scope of Protection: Understanding the scope of protection of the IP assets can help determine their value. You should review the claims of relevant patents and the coverage of relevant trademarks and copyrights.

By thoroughly evaluating these steps, you can determine the strength of the IP assets and their potential for revenue generation. It is recommended that you engage the services of an experienced IP attorney to ensure that the due diligence process is conducted accurately and efficiently.

5.Assess the Risks of Infringement: 

Identifying potential infringement risks can help mitigate legal and financial risks associated with IP assets.

6.Determine the Scope of IP Protection: 

Understanding the scope of IP protection can help identify gaps in security and opportunities for expansion.

7.Evaluate the Status of Pending Applications: 

Reviewing the status of pending applications can help identify potential delays in obtaining IP protection.

8.Investigate IP Disputes: 

Investigating any ongoing IP disputes can help mitigate legal and financial risks associated with those disputes.

9.Review IP Strategy: 

Reviewing the target company's IP strategy can help identify any weaknesses or areas for improvement.

10.Assess Integration: 

Evaluating the integration of IP assets can help identify any challenges and opportunities associated with combining two companies' IP portfolios.

In summary, IP due diligence is a critical step in M&A transactions. It helps identify potential risks and opportunities associated with IP assets, which can significantly impact the value of a deal. By conducting thorough IP due diligence, businesses can make informed decisions and ensure the long-term success of their M&A transactions.