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INTELLECTUAL PROPERTY
Intellectual property
Due diligence scope
Reviewing intellectual property (IP) in a technology due diligence is crucial for several reasons:
Assessing IP ownership
It helps determine the ownership and control of the technology being evaluated. This is important to ensure that the target company has the necessary rights and licenses to develop, manufacture, and distribute its products or services. Understanding the ownership structure and any potential issues with IP ownership is essential to avoid legal disputes and protect the value of the investment.
Evaluating IP strength
Assessing the strength of a company's IP portfolio allows potential investors or acquirers to determine its competitive advantage and market position. It involves reviewing patents, trademarks, copyrights, trade secrets, and other proprietary assets. Understanding the breadth, depth, and enforceability of the IP rights helps assess the potential risks, such as the risk of infringement claims or challenges to the IP's validity.
Identifying infringement risks
Analysing the IP landscape helps identify potential infringement risks. It allows the acquirer to evaluate if the target company's technology infringes upon any existing third-party patents or copyrights. Identifying such risks in advance helps the acquiring party assess the potential costs, legal liabilities, and risks associated with ongoing litigation.
Mitigating IP-related liabilities
Conducting a thorough IP due diligence can uncover any potential IP-related liabilities that may affect the target company's ability to operate, expand, or commercialize its technology. This includes identifying any pending litigation, claims, or licensing agreements that could impact the value or freedom to operate of the IP assets. It enables the acquiring party to assess the associated costs and potential impact on the investment decision.
Evaluating commercial viability
Intellectual property is often a significant driver of a company's commercial success. By reviewing the IP, potential investors or acquirers can assess the technology's market potential, growth prospects, and revenue streams. This analysis helps evaluate the market exclusivity, protectability, and scalability of the technology, providing insights into its long-term commercial viability.
Supporting valuation and negotiations
The outcome of the IP due diligence can influence the valuation of the target company and serve as a basis for negotiations. A comprehensive understanding of the IP assets and risks allows the acquiring party to make informed decisions regarding the deal's terms, pricing, and potential contingencies.
Intellectual property
High-level scope
IP inventory
Identify all forms of intellectual property the company owns or uses. This can include patents, trademarks, copyrights, trade secrets, and domain names.
Ownership verification
Verify that the company indeed owns the listed intellectual property. If any of the IP is licensed, confirm the terms of the licenses.
Patent status
For each patent, check its status, scope, remaining lifespan, and which jurisdictions it covers.
Trademark status
For each trademark, check its status, classes of goods/services it covers, and which jurisdictions it covers. Verify if the trademarks are properly registered and maintained.
Copyright registration
Check if key copyrighted materials are registered. While registration is not required for copyright protection, it does offer additional legal advantages.
Trade secrets protection
Understand how the company protects its trade secrets. This could involve confidentiality agreements, secure storage methods, and employee training.
IP agreements
Review all agreements related to intellectual property, including licensing agreements, non-disclosure agreements (NDAs), and assignments of IP rights. Ensure that IP clauses in employee and contractor agreements adequately protect the company's interests.
IP litigation
Check if the company has been involved in any IP-related litigation, either as a plaintiff or a defendant. Understand the outcomes and ongoing risks of these cases.
IP strategy
Evaluate the company's strategy for protecting and monetizing its intellectual property. How does it plan to leverage its IP to gain a competitive advantage?
Future IP
Consider any intellectual property the company plans to create in the future. Does it have a roadmap for new patents or trademarks?
IP infringement
Review whether the company's products or services could potentially infringe on the IP rights of others.