Due Diligence A necessity Not a Luxury

All of at us have at some stage in our lives been sold a “lemon” or have, after making a purchase that didn’t quite meet our expectations, been coldly told “caveat emptor” or buyer beware! The only reassuring thing about this fact is that we are not alone - but the magnitude of the resulting fallout can differ enormously ranging from a slight annoyance to a complete catastrophe.

Unfortunately, the same is also true in business, and in particular in the buying, selling, licensing or franchising of Intellectual Property (IP) where the need to prevent a disappointing outcome or to mitigate against threats of negligence is in even sharper focus. But more than that, by taking some simple precautions, there is an opportunity to turn a good deal into a great investment, and the to make significant savings or gains depending on which side of the transaction fence you belong to.

It is very common during the selling or licensing process to concentrate solely on the number crunching exercise and to overlook aspects that are equally, if not more important, such as: Who is the true owner of the IP? Is it still valid? Will the transfer of rights be exclusive?

So when undertaking a Due Diligence Investigation during a company merger, acquisition, takeover or sale; or when negotiating a license or franchise agreement; or when buying or selling a Patent, Trademark or Copyright Right, a check list containing at least the following should be applied:

 Discuss fully with your IP Professional what it is that you think you are getting out of the transaction.

 Understand what is being bought or sold, and your obligations to the buyer or seller.

 Commission a full Independent Search on the ownership of the IP, the IP history and Maintenance Fees, Renewal Fees to ensure that Rights are still in force. Such a Search is important to confirm validity of the information being presented.

 Request from the seller of the IP details of other IP’s, which may affect or restrict your usage of the IP in question.

 Check out Copyright implications – who owns the literature, manuals, brochures etc.

 Ascertain if there is any mortgage on the IP.

 For Patents request details of any Improvement Patents that might exist.

 Ascertain whether the IP is the subject of any litigation or infringement suits.

 Understand and request details of all significant timelines involved with the IP such as the duration of the license.

 Request details on Significant Third Parties and  Always, always ensure that the seller is entitled to sell the IP.

Definition of Due Diligence: An evaluation, performed by investors or their agents, into the details of a potential investment or purchase, where the evaluation involves a verification of all the material facts relevant to the investment or purchase.

If you have any thoughts, comments or additions to the above discussion please e-mail icockburn@piperpat.com to begin a dialogue, or conversely consult an IP professional to determine best fit patent strategies for your firm.



Due Diligence A necessity Not a Luxury - To learn more about this author, visit Ian Cockburn's Website.

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