IP Due Diligence Services – M&A Transactions
As anyone knowledgeable in IP will tell you ‘Counting does not count’ and when it comes to IP rights it is the quality that counts more than the quantity! Without good due diligence, it would be possible to buy a major product without knowing it was infringing another’s IP rights.
Patent litigation especially lies in wait for a capital injection or IPO in a business and then jumps out to attack when the coffers are full.
M&A IP due diligence has had a spotty history with many being satisfied with a simple count of IP rights and a standard set of reps and warranties to cover any risks.
There are many issues with this approach as VW may (not) tell you:
When VW bought Rolls Royce (cars) no one realised that all the trademarks were held by Rolls Royce aerospace which was outside of the acquisition.
As a result, VW ended up with ‘egg on its collective face’ because whilst it had acquired the manufacturing capability it did not have the rights to sell cars under the Rolls Royce trademark!
1. Ownership checks. In many other areas of business, ownership of assets is very clear, however, IP rights are not the same as other asset classes and it is estimated that as many as 20% of all patents have an incorrect chain of title.
It is similar to trademarks and other IP assets so checking the title to IP records is a must with acquisitions. Similarly, ensure the owner has the right to transfer the assets in question.
2. Freedom to Operate. Sometimes M&A activity triggers litigation because it suddenly becomes financially more interesting for the other party as the likely damages increase.
Checking freedom to operate for major products is a good idea, that is understanding the likelihood that you might be infringing others' IP with your products in the marketplace.
The other side of this assessment is to understand whether any of the IP rights have been involved in any form of litigation defensive or offensive.
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3. Competitive landscape review. Understanding the IP competitive landscape can identify businesses who may not be immediately obvious as competitors, for example smaller fast growth businesses and new entrants. IP registration activity can be an early sign of intended product launches or business transactions.
4. Trademark assessment. It is essential to check the brands to see what protection is in place from registered and unregistered trademark rights, whether these rights are enforced and whether there is good evidence of use and goodwill to support trademarks in each jurisdiction.
5. Assessment of online brand assets through domain names (ownership, management, status); websites and comprehensive, active coverage of all social media platforms.
6. A review of online infringement and counterfeit activity to understand any risks likely to damage sales and reputation.
7. Trade secrets review. Review of trade secrets and know-how programmes and systems in place. Review of any likely exposure to trade secret theft or infringement (both ways).
8. Copyright. Ensure optimal use of Copyright protection throughout the business.
9. Licenses review. Review and understand any licenses and liens on the IP and implications post-completion.
10. Agreements review. Contracts review with a focus on protection for IP, term length, with employees and with suppliers, customers, and partnerships.
11. Open source risks. Assessment of the use of open-source software and the risks associated with unknown licenses and security back doors.
12. Data risks. Ensure all data is protected using IP rights, and technology and meets regulatory guidelines.