FACT SHEET:  IP Due Diligence in M&A Transactions

 

FACT SHEET:  Intellectual Property Due Diligence for Buyers & Sellers

by Jim Chester, JD/LL.M[1]


 

Pre-Sale IP Due Diligence:  Develop an IP Asset Inventory

Before the parties can properly value the IP assets of the selling company, they must carefully review a full and accurate inventory of all IP assets, an “IP Asset Inventory”.

 

The public portion of the IP Asset Inventory may include:

  • Published patent applications
  • Patents
  • Trademark applications and registrations (state, USPTO, and/or international)
  • Trade names
  • Advertisements, newsletter and similar public communications
  • Copyrights registered with US Copyright Office
  • Domain URLs
  • Social media accounts

 

The non-public portion of the IP Asset Inventory[2] may include:

  • Non-published patent applications and related materials such as patentability or prior art searches;
  • Unfiled or unregistered trademarks and related materials such as clearance searches;
  • Trade secrets and confidential business information;
  • Licenses and assignments relating to the IP assets;
  • Employee manuals and training materials; and
  • Letters and other communications relating to litigation, claims of infringement, title disputes, or other adverse action related to the IP assets.

 

Conducting the IP Due Diligence Investigation

Although each situation is unique, an IP Asset Inventory evaluation will often involve the following steps:

 

  • Step 1: Review the IP Asset Inventory to determine the selling company’s rights with respect to each of those IP assets (e.g., owner, co-owner, license, etc.).
  • Step 2: Review any active litigation, settlements, coexistence/consent agreements, assignments, and any other agreements affecting the selling company’s rights in the IP assets.
  • Step 3: Ensure that the IP is enforceable, and that registrations are current.
  • Step 4: Assess the value of the IP.  Analyze the value of the IP as it relates to current production and future expansion of the business.

 

IP assets and the Transaction Documents

Once the review has been conducted and the parties wish to move forward with the transaction, they must ensure that all IP assets are properly identified in the various lists, schedules and exhibits to the transaction documents.  In addition, to protect the buyer, the seller generally makes representations and warranties regarding the seller’s ownership of the IP, the lack of infringement of third-party IP, etc., and agrees to indemnify buyer for any costs of claims resulting from the failure of seller’s representations and warranties.

 

Post-Sale IP Filings

Following closing on the transaction, the IP assets transferred to the buyer must be delivered to the buyer.  To formalize the transfer, assignments must be recorded with the USPTO, Copyright Office, and any other state, federal or foreign IP registry to indicate the new ownership of the IP assets.

 


[1] Jim Chester is managing attorney at Chester PLLC, a business & innovation law firm based in Dallas, Texas.  www.chester-law.com.  He is also an adjunct law professor at Baylor University School of Law.

[2] Prior to releasing such information, seller should require a non-disclosure agreement (NDA) to protect its proprietary IP assets.