Patent Issues Relating to Acquisitions: Conducting Intellectual Property Due Diligence

Profession:Foley & Lardner

Article by Pavan K. Agarwal Partner and Leader, Electronics Practice Group and

Steve Maebius1 Partner and Leader, Nanotechnology Industry Team.


Thorough and comprehensive Intellectual Property (IP) due diligence requires much more than compiling a listing of the company's IP assets. Rather, IP due diligence requires assessing the strength of the company's IP rights in the marketplace, the strength of the competitors' rights in the marketplace, and the effect of the IP on the base company's products and other IP rights.

Often times, business realities are such that the business transaction is ready to take place and the due diligence must be done quickly in very short order. The IP due diligence team needs to be experienced and focused; otherwise, critical issues will be missed that affect the bottom line. Prioritization of key areas of inquiry based on business objectives of the deal is critical to success.

The Basic IP Due Diligence Steps

While every IP due diligence must be tailored to meet the particular business situation at hand, certain basic steps should at least be considered:

Identify Products and Services

Identify Corresponding Intellectual Property

Prioritize Analysis (if necessary)

Analyze State of Relevant Industry

Determine Scope of Protection Provided by IP Assets

Verify "Exploitability" of IP Assets

Conduct Non-Infringement Investigation

Review Warranties and Indemnities

Review Any Other Considerations

Establish a Value

The following discussion outlines these points in greater detail.

Identify Products and Services

The first step is to understand the company's basic products and services. This includes not only understanding the current product and service offerings of the business, but also understanding projected products and services. This knowledge can be a driving factor for many of the later steps.

Identify Corresponding Intellectual Property

Another preliminary step in the due diligence process requires taking inventory of the company's intellectual property rights. Of course, all forms of intellectual property should be carefully accounted, including patents, trademarks, copyrights, trade secrets/know-how, and agreements that affect IP. The IP rights should be matched up with the product areas or business units, as appropriate. This IP should be assessed in some detail, as outlined in "Determine Scope of Protection Provided by IP Assets" below.

Prioritize Analysis

The third step in the IP...

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