Intellectual property, or IP, is an intangible asset such as a patent, trademark, copyright or trade secret, that is often a company’s most valuable financial capital. An examination of a company’s IP portfolio will assess the current and potential value of the IP, if it can be transferred, as well as if it is enforceable or if there is any pending or potential future litigation.
While it is most useful and advantageous for a company to do IP due diligence at the beginning of negotiations, often this detail is left to the end, especially in mergers and acquisitions (M&A’s). The risks of ignoring or undervaluing IP will threaten negotiations for both the buyer and the seller.
Assessing the risks and benefits of IP assets
For smaller, high-tech companies such as medical device or semi-conductor producers, the patent is a large part of its value. While it can upend a deal when the buyer doesn’t realize the value of the asset, the inventor can also lose out by being overly aggressive in promoting it. Having a patent valuation specialist can help clarify the true worth of the patent.
Due diligence will not only assess the potential market value of the patent and what it may bring in through licensing fees, but also look at past infringement for opportunities to license it, which infringers are likely to prefer over costly litigation.
Looking at competitive value and the assignments and releases of the IP will reveal how much risk the IP carries. A potential buyer will want to check to see if the company had procedures in place for corporate ownership of any patents generated by its employees.
Having confidentiality agreements for non-registered IP is essential if a company pursues a trade secret appropriation claim if a potential buyer has been secretly using the seller’s IP in its own products.
Performing due diligence early
The reason many companies avoid IP due diligence until late in the game is that it is expensive, which they often to view in terms of cost analysis rather than investment. Unfortunately, potential liability from patent lawsuits can derail a deal at the last minute.
The best way to streamline the process is to get the patents on the table and bring in third-party consultants to examine them early. For the seller, it is also critical to establish ownership and proper assignments of its IP in order to avoid future disputes.
For companies that are involved in a business transaction that involves a transfer or licensing of IP, it is important to have an experienced legal source serving Minneapolis that can provide essential due-diligence investigations.