IP DUE DILIGENCE (Merger, Acquisition, Joint Venture)
An “event driven” IP audit ('IP due diligence') is done to assess the value and risk of all or a part of a target company’s IP assets.
IP due diligence is a small or significant part of a comprehensive due diligence audit that is done to assess the financial, commercial and legal risks linked to a target company’s IP portfolio, typically before it is bought or invested in.
When done properly, IP due diligence provides detailed information that may affect the price or other key elements of a proposed transaction or even aborting the further consideration of the proposed transaction.
- Conducted before entering into negotiations.
- CDA⁄ NDA signed between the potential acquirer, investor, or creditor and the target company.
- Identify and locate IP assets, and then assess the nature and scope of the IP to allocate risks associated with the ownership or use of the relevant IP assets.
- Identify problems in and barriers to the transfer, hypothecation or securitization of the IP assets under consideration.
- Identify and apportion between the two parties the expenses incident to the transfer of IP assets under consideration.
- It could lead to a significant increase in the value of the acquired company or the resulting merged entity.
- It may significantly reduce the acquisition cost or lead to a cancellation of the acquisition process if the due diligence process reveals major IP risks or IP problems in the target company.
FINANCIAL TRANSACTIONS
- Initial public offering
- Private placement of stock
- Significant stock purchase
- Security interest in IP, as all of these have an impact on the ownership of IP
- Business loans
IP ASSIGNMENT: TRANSFER
- Before a transfer or assignment of interest in IP, an IP due diligence should be done separately by both parties to ensure that the transfer or assignment meets both their respective business interests.
- A potential licensor has to ensure, for example, that it actually owns the IP that is sought to be licensed to others, and there are no existing licenses that would interfere with the proposed new license.
LAUNCHING NEW PRODUCTS OR SERVICES
- Before a company buys or sells a division or a product line, a seller will generally make a series of representations and warranties as to the ownership, non-infringement and marketability of the IP assets linked to the transaction in the ensuing written agreement.