The Ultimate Guide to IP Due Diligence in M&A Transactions

Mergers and acquisitions (M&A) often require a thorough due diligence investigation to provide a comprehensive understanding of the financial, corporate, and legal standing of both parties involved in the transaction. The process becomes even more rigorous when there are substantial assets or significant risks at stake. In some industries, particularly those associated with technology, it may also involve a review of the intellectual property (IP) of both companies. M&A deals often revolve around the innovative and valuable IP of a company, making IP due diligence a crucial step in the process.

To conduct an appropriate IP due diligence, a company must first identify its IP assets. The identification process involves reviewing a comprehensive list of the company’s IP and narrowing down which assets require further evaluation. IP that influences competitive advantage and/or exposes a party to liability will demand the most scrutiny.

In addition to identifying the IP assets, it is also crucial to demonstrate the development, acquisition, and ownership of the IP. A prospective investor or purchaser must determine who actually owns and controls the relevant IP, which can be a tricky process. To prove that the party holding the IP has the right to own and utilize it, there will likely be requests for information that demonstrate ownership.

To further support the ownership of IP, it is important to take the necessary steps to register it and assert legal rights to the data. The process of examining a company’s patents can be complicated, so it is essential to keep all pertinent records organized.

IP due diligence also involves examining any licensing agreements or contracts that allow other parties to use the IP. This is a crucial step to determine whether there will be any issues after the deal closes. A large number of agreements, especially those in foreign jurisdictions, can make it difficult to track and enforce IP rights, which could impact the ability to proceed with the deal.

Lastly, IP due diligence requires information on IP protection and existing or potential disputes. This includes evidence of actual disputes and challenges to IP usage, as well as claims of unenforceable or legally unsound patents. The rules surrounding patent challenges are complex, making it important to provide companies with the right level of IP protection to foster creativity and innovation.

In conclusion, IP due diligence is an important step in M&A deals and requires a comprehensive evaluation of a company's IP assets, ownership, protection, and disputes. The key to navigating the process successfully is to remain organized and take the necessary precautions to protect the company's IP.