IP Due Diligence - US
Due Diligence in the context of mergers, acquisitions, joint ventures and investments is important. Care must be taken so as to not render the diligence merely a check-the-box exercise because of its importance in licensing activity, sustaining requisite values, global licensing transactions etc. The purpose of intellectual property-related due diligence is to to determine relevance of intellectual property to the transaction at issue and material impairments as well as various IP assets for business growth.
From the perspective of the licensor, the aim is to identify problems before taking the IP to market and correct them, if possible. However, before going into the due diligence in the context of licensing activity, it is important to budget for the exercise, as without proper fiscal management, the exercise may consume more time in transaction. So, the diligence should be in large part by the perceived value of the deal. From the side of the perspective licensor, the purpose is to prepare the portfolio for out-licensing and to understand the extent of the state at issue from the point of view of the prospective licensee, such as ownership, payment of maintenance fees and so on. While preparing the portfolio to go to market, it is important to review the patent for holes in the portfolio, and to assess design-around options. In case these are discovered during the initial diligence, it may be possible to file continuing applications in order to expand the portfolio or acquire other patents. Additionally, this exercise will enable to find mistakes in the portfolio before the other party is in a position to capitalize on them.
The view point in case of perspective of the prospective licensee will be the scope and strength of the patents, making the patents vulnerable to prior art challenges. In assessing the portfolio, the prospective licensee will also focus on the ability to utilize the technology that is the subject of the licence, keeping in mind that a licence is not a right to use, but a right to exclude the subject of the patent. As a result, proper diligence must include an assessment of any potential blocking patents, and a full right to use study.
At the end of the process, the purpose of diligence is to assist the parties in striking the fair and proper commercial terms. In some cases the diligence will reveal the terms of the agreement, including the royalty and information that precludes doing the deal altogether. For either side, the diligence team should deliver a report identifying all issues and details required to be followed up and be positive in proposing solutions to the issues.
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