7 Steps That Businesses Must Include in Their IP Due Diligence Checklist
Intellectual Property (IP) is the most significant asset in the possession of any company. If IP-related sensitive data is ever stolen or lost, the company becomes vulnerable to failure and bankruptcy. Organisations can own IP in several forms. Be it patents, trademarks, copyrights or a business model; a unique concept designed by a staff member; or know-how of the company’s operations – everything falls under the purview of IP.
A company’s competitive edge stems from IP. Therefore, many businesses that do not have innovative patents of their own, look to acquire IP from companies that have an existing robust IP portfolio. To do this, IP due diligence needs to be conducted effectively to ensure that the IP of the target company is viable enough for acquisition.
What is Due Diligence?
Due diligence is the process of ensuring that a particular action or activity, about to be undertaken, does not result in any crime or legal offence in the near or distant future. It is a lengthy process that consists of several activities. It is usually conducted on a target company along with its assets and liabilities to help an acquiring company understand the business prospects and viability of such an acquisition or merger. In terms of IP, there are two main types of due diligence:
1. Legal Due Diligence
Legal due diligence of IP is centered on the requirement of IP acquisition by an acquiring company. This checklist consists of several more complex activities, which are discussed in this article to give a fair idea of the processes to follow while conducting IP due diligence.
2. Technical Due Diligence
During such due diligence, the acquiring company examines the technology and implementation of the IP being acquired from a target company.
IP Due Diligence Checklist for Prospective Buyers
Since an IP due diligence checklist is primarily required for acquiring IP from a target company, the buyer company needs to carry out extensive research into the implementation of the particular patent or IP within their business domain. There’s also a need to check the entire patent family before transferring ownership of IP from the target company to the purchasing company. Here are a few detailed steps for this checklist:
1. Check Validity of IP
First and foremost, the validity of the IP being acquiIP Due Diligence Checklistred needs to be examined. This can be done by checking with the local IP approval bodies where the particular IP has been registered.
2. Maintenance Dues
To maintain the validity of an IP, the owner company needs to keep paying maintenance fees as per the schedule of the respective patent authority. The purchasing company needs to ensure that the IP they are acquiring does not have any such dues.
3. Review Past Litigations of IP
For buyers, past litigations could be a strong check as it scrutinizes the patent/IP thoroughly. The IP that withstands the litigations is considered to be the best. However, the buyers must review the details of litigations to understand the challenges posed and how they were dealt with.
4. Check Re-examinations Filed for IP
Patents or IPs that have re-examinations filed with the respective patent authorities are subject to questionable validity and scope of the claims. Such types of patents should be avoided by purchasing companies.
5. Look For Existence of Prior-art Claims
Patents or other IPs that have prior-art and related claims should also be avoided by companies while looking to acquire IP from a target company. Prior arts destroy the existence of IP and all rights are proved to be null and void. This should be one of the most important steps in a due diligence checklist if a purchasing company is looking to acquire a patent that is 100% unique in every aspect.
6. Ownership Verification
The real owner of a patent or IP must be verified by the purchasing company. It is common for employees and companies to have shared or joint ownership of an IP. Therefore, it requires the purchasing company to work out such trivialities of ownership before beginning IP acquisition transactions.
7. Check for Encumbrances
This vital step in the due diligence checklist involves conducting background checks to find out whether the IP available for sale has been already licensed by the target company to other companies. IP that has already been licensed to other companies often loses its business value. It is always preferable to acquire IP that is innovative and has never been marketed before.
Apart from conducting the legal IP due diligence, purchasing companies also need to conduct technical due diligence, which essentially confirms the technical viability of implementing the IP for the new business.
Furthermore, a patent with infringement is always a bonus for the buying company. It has multifold benefits – competitive advantage from the infringing company, monetization opportunities, and much more. Once the whole due diligence procedure has been completed, the purchasing company can begin the acquisition transactions with the target company.
Sagacious IP’s patent due diligence services help businesses to assess the quality of patents to make informed legal decisions. Our team of skilled patent practitioners conducts a thorough investigation to assess the quantity, quality and enforceability of a patent or patent portfolio owned by businesses.
-Dhananjay Kumar Das (ICT) and the Editorial Team