A company or an inventor may have one or multiple patents in their own name, creating their patent portfolio. The process in which the patent portfolio is carefully analyzed is known as due diligence. It is the audit of the quality and the number of intellectual property assets that a company holds. It also includes how those patents have been captured and protected by the business. A prospective buyer in regard to the IP assets of the company usually performs IP due diligence.
Why is IP due diligence conducted?
Patents or intellectual property have become one of the most important assets that a company can hold in its name. That is why it is important for a company to understand-
- The quality and quantity of the owned patents so that any 3rd party can put a price on it.
- It is done so as to analyze which patents have not been used by the company so that any unnecessary costs such as maintenance costs etc. are not borne by the company.
- Due diligence is done so that it can be verified whether the patents are protected properly.
- It is also done so that we can verify our ownership of such assets.
When should a person perform patent due diligence?
There are various cases where it is advisable for the company or the inventor to perform necessary patent due diligence. These are-
1. After receiving a cease and desist letter or any other notice letter-
In order to start licensing conversations, enforce their patent rights, or obtain the chance to pursue damages, patent owners typically send stop-and-desist letters or notices to infringers as a warning about the existence of the patent rights. By using due diligence, the inventor can ensure that they have a strategy to cope with the risks.
2. During mergers and acquisitions-
During an M&A transaction, we should see analyse whether the seller’s patent portfolios contain crucial company technology; whether all fees have been paid; and whether there are any ownership or chain of title problems. By taking these actions, the parties will be able to give the portfolio a monetary worth.
3. During divestment-
Patent owners can choose how their patents will be used through techniques like divestment and licensing. A variety of quantitative and qualitative methodologies can be used to value patents. The extent and strength of the patent rights can be ascertained with the aid of qualitative investigation.
4. For contingency reasons-
It is also possible to conduct patent due diligence for backup plans. Conducting patent due diligence is a sensible move if you suspect that you could be sued for infringement and would like to obtain a better understanding of your patent portfolio and it compares to that of your competitors. It makes sense to invest in competing for patent due diligence if, for example, you intend to sue a business for violating your patents.
5. Before filing a patent application-
Due diligence is also done before filing a patent application. They are performed so as to assess prior art references.
Steps to conduct due diligence properly-
- Make sure you have a competent team performing IP due diligence in place.
- Consult with IP experts to determine what to anticipate from the transactions.
- Based on what is required, create an IP due diligence checklist.
- Segment the target’s IP holdings that are important to the deal.
- Differentiate between relevant intellectual property rights and intangible insights that can be protected.
- As it relates to IP ownership, learn the specifics.
- Make sure to gather the data on additional intellectual property rights that can become problematic in the future.
- It is crucial that the information gathered is verified twice so that any discrepancies can be avoided.
- The IP agreements should be documented, executed, and recorded properly.
To reduce the risks involved, due diligence is a non-negotiable task for organizations. No matter how your IP portfolio is organized, it should be done. For all parties involved, having a good due diligence approach and applying it correctly offers a wealth of benefits.
