A survey and searches are considered essential before buying a house; in the same way, it is important to check for pitfalls before buying IP.  A due diligence process can help the purchaser judge the relevance of the IP for sale and highlight any potential issues before committing to the transaction.  

What is due diligence? 

IP due diligence refers to looking into aspects of an IP portfolio that might affect its value. The idea is to consider anything that will affect the result and value of the action the instructing party is planning to take. It can be a time consuming and costly project but identifying concerns prior to completing an IP transaction is usually beneficial.  

The process can be tailored to meet the needs of the party in question, and the value and risk profile of the transaction. We regularly carry out due diligence exercises ranging from a quick and dirty review to identify any major red flags to an extensive and thorough review of each and every IP right included in a transaction. Due diligence may be undertaken on behalf of a party buying or investing in an IP portfolio (either on its own or as part of a broader transaction). It may also be carried out on behalf of a seller or party seeking investment, for example to identify any areas of risk, allowing the seller to plan how to address any concerns a purchaser might have, before they are raised.  

Some of the aspects usually considered during due diligence include: 

What is included in the transaction? 

It is important to know what IP exists and to check that all the relevant IP is included in any transfer documentation. It is not unusual for an incorrect or incomplete schedule of IP to be provided at the start of a transaction process. A search may help ensure that all the relevant IP is included. 

Ownership 

Once the cases that should be included have been identified, it is worth checking the official IP registers to see if the IP is in the name of the entity selling the rights. If it isn’t, the next step is to investigate why not.  

There are valid reasons for IP being held in a different name to the party selling it. For example, the IP could have been filed in the name of a different company in the same group or the IP could have been transferred to the seller without registering the transaction.  Of course, it is also possible that the seller does not own the rights at all.  

If the IP is in the wrong name, but is owned by the party selling it, it is also important to check whether it will be possible to record the transfer of the rights to the purchaser. For example, if an earlier transfer has not been recorded, is documentation available to complete that recordal now? If not, is the previous owner available and amicable to signing further documents? 

Even if the seller is on record as owning the IP, we recommend some basic checks on their entitlement to the IP, for example looking into their relationship with the inventor, and that the relevant chain of title is in place.  

Status 

The status of each case (is it in force, granted or pending and are there any upcoming deadlines?) should be checked.  

Scope of protection 

The value of the IP will depend on the scope of the protection. It may be useful to consider whether the scope of protection is in line with the purchaser’s commercial objectives, how enforceable the IP is, the geographical scope of rights and when any rights will expire. 

Do any third parties have any rights to the IP? 

IP can be assigned, mortgaged and licensed. If the seller has entered into any such agreements with third parties, they may have rights that will continue even after the IP is sold. Any such agreement should be considered carefully, as it could affect the purchaser’s freedom to use the IP.   

Disputes 

The due diligence process can flag up disputes with third parties. For example, oppositions, request for central limitation or third-party observations will be shown on the EPO’s official register. Official registers of national offices may highlight issues such as request for opinions, declarations of non-infringements, revocation actions and infringement actions.  

Conclusion 

IP due diligence can be a valuable process to go through. Discussing any transaction with an IP attorney, prior to it being completed, is advisable to ensure the right questions are asked. If you would like assistance with due diligence or any related matter, please contact our due diligence team.  

This briefing is for guidance only, and should not be taken as legal advice.