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Due Diligence In Intellectual Property

› Intellectual Property › Due Diligence In Intellectual Property

Intellectual property plays a key role in the valuation of a company or a business arrangement and is necessary to assess the risks and potential profitability of a possible course of action. Due diligence arises most often in the context of mergers and acquisitions, but may also come into play in other situations, such as the formation of a limited partnership or joint venture. For businesses reliant on intellectual property, evaluating purchases, licensing agreements and other transactions, that evaluation is equally important whether your business is on the acquiring or offering side of the transaction.

Due Diligence

Due diligence involves assessing the ownership, status and control of the intellectual property assets, their economic value and the risk of liability associated with them. Some of this analysis requires technical expertise, and it will come as no surprise to Since much of this analysis involves legal status and the assessment of litigation risks, an experienced intellectual property lawyer will be an invaluable resource for your business.

Counsel can provide a summary report detailing the investigation and assessment, which serves not just as an update to the client but also as a useful tool in the negotiation process and the drafting of contracts.

Legal Status of Intellectual Property

  • Some key questions to be answered in assessing status of intellectual property include:
  • Are all registrations up to date and valid?
  • Is the chain of ownership clear and well-documented?
  • Have any assignments been properly recorded?
  • Are there any liens or other encumbrances on the intellectual property?

Of course, this is only a high-level overview. The actual due diligence process is extremely detailed and technical.

Conducting the Assessment

Conducting this assessment with regard to your own assets is simpler and less time-consuming if you work with an experienced intellectual property lawyer from the beginning, so your attorney has already taken steps to protect your rights and has records regarding ownership, registration, and other records.

If you are just getting started with the law firm or if you are conducting due diligence with regard to the intellectual property holdings of a company you are considering acquiring or entering into a business venture with, then the attorney will review your records, search public records and otherwise gather the information necessary to conduct this audit.

Risk of Litigation

Internally, it is important for a business to maintain an ongoing awareness of litigation risks and to act to eliminate or minimize those risks to the greatest degree possible. This allows the business to put adequate protections in place on an ongoing basis and to diversify if there is a significant risk associated with one aspect of the business or one patent or another asset.

However, when a business looks toward acquiring another company with intellectual property assets or to licensing, providing capital for or otherwise taking an interest in the intellectual property of another organization, a fresh analysis is typically required. Although the other business will provide records and documentation, due diligence requires more than reviewing what has been submitted by a party with a vested interest in the outcome.

Key Considerations

Some key questions with regard to the risk of litigation include:

  • The quality and validity of intellectual property licensing agreements and assignments
  • Similarity of the inventions or processes to pre-existing intellectual property that could give rise to allegations of infringement
  • Any suggestions of infringement that have been made in the past, whether or not those allegations resulted in litigation

The factors above also impact the assessed value of the asset or assets. While valuation is not strictly a legal question, the legal analysis attached to this process has a significant bearing on the value of intellectual property. For example, the risk of litigation associated with intellectual property, outstanding licensing agreements, reliance on agreements with others (for example, where a customized software platform is built on a framework of licensed or open source code) and limitations on use will all impact the assessed value.

Work With a Due Diligence Attorney

Conducting due diligence with regard to intellectual property is critical in many industries, and the number of businesses with significant intellectual property interests continues to grow as software, automated systems, and other technology grow in popularity and importance. However, conducting this type of audit and assessment can be overwhelming, particularly when other aspects of the business are ongoing and require the attention of your internal team.

Consult With KPPB LAW Today

KPPB LAW’s experienced intellectual property attorneys offer complimentary consultations and can ensure that all legal issues are properly considered and thoroughly investigated while also reducing the burden on your professionals and managers. Contact KPPB LAW for more information.


Intellectual Property Attorneys at KPPB LAW

sonjui kumar
Sonjui L. Kumar

Partner
Gaines Carter headshot
Gaines Carter

Of Counsel

info@kppblaw.com


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