Intellectual Property Due Diligence
Intellectual property is probably best thought of (at least in general terms) as creations of the mind that are given the legal rights often associated with real or personal property. The rights that are given are a function of statutory law (i.e., law created by the legislature) or, in the case of patents and copyrights, originate from the United States Constitution. In some instances, both federal and state laws may govern various aspects of a single type of intellectual property.
Intellectual Property (IP) due diligence is a legal exercise wherein skilled IP counsel defines, examines and analyzes an IP portfolio of a company. IP due diligence investigations should be conducted by a party any time a merger, acquisition (“M&A”) or investment is being considered. Intellectual property due diligence involves the gathering of information on the acquired party’s assets and liabilities, in order to assess the merits and risks of the transaction. One of the most important assets of the acquired party may be its intellectual property. These intellectual property assets could include patents, trademarks, trade dress, copyrights, trade secrets, and domain names.
Intellectual Property: Avoid Pitfalls
Failure to examine these during due diligence in a manner appropriate to the deal at hand can lead to reevaluation, repricing or structural changes of the transaction.
For example, Volkswagen outbid BMW in 1998 to buy Rolls Royce and Bentley and their British factory from Vickers PLC for $917 million. But an odd twist in the deal allowed the Rolls-Royce aerospace company to sell rights to the ROLLS-ROYCE trademark to BMW out from under Volkswagen for $78 million. Thus, after the deal closed, Volkswagen did not have the rights to use the ROLLS-ROYCE mark. Only after a separate deal was made with BMW to avoid litigation, did Volkswagen gain the ability to manufacture a trademarked ROLLS-ROYCE car.
Thus, IP due diligence in an M&A or corporate transaction should not be overlooked and should be undertaken early in the process. The following are five common IP issues that may impact M&A transactions.
- Target Does Not Actually Have the Critical Patent Rights
- Prior Agreements Limit IP Rights
- Target is Subject to Pending/Threatened Infringement Claims
- Significant Barriers Exist to Exploitation of the Technology
- Target’s IP Rights Are Encumbered by Liens
How to conduct an Intellectual Property Due Diligence Investigation
Conducting an IP due diligence investigation is complex and it is critical to have an accurate inventory of a company’s IP. Each asset must be reviewed to ensure: (1) all registrations to which the asset is entitled have either been obtained or applied for and are up to date with the relevant filing office, (2) a clear chain of title from the inventor, author, or previous owner, (3) the existence of appropriate assignment documents recorded in the public records, and (4) the lack of any encumbrances such as security interests or liens. Any contracts involving the grant of IP assets or the right to use or control must also be reviewed to identify any restrictions.
Intellectual Property Due Diligence Reports are utilized by:
- Companies buying or selling patents
- Investment firms and banks conducting transaction due diligence
- IP law firms conducting patent screenings for clients
What Intellectual Property Transactions require Due Diligence?
IP due Diligence is required in these IP transactions:
- Mergers and Acquisitions
- Joint Ventures & Collaborations
- Strategic Alliance
- Portfolio Assessments
- Acquisition IP Due Diligence
- Patent Portfolio Due Diligence
- OEM Procurement
Kaliko & Associates can create a create an IP due diligence report for your company to ensure that you are not leaving millions of dollars on the table. Please contact us for an estimate on Kaliko & Associates performing an IP due diligence report for your company at 201-739-5555.