27 August 2019

Why should your business consider IP due diligence?

While intellectual property (IP) is absolutely key to the success of some businesses, it can be less relevant to others. Mathys & Squire focuses on conducting meaningful and worthwhile due diligence in a manner that is proportionate to the value of the IP in the context of the current and future commercial activities and the value of the transaction in question.

Where IP is peripheral, a simple validation that the IP exists and there are no formal issues may be all that is needed. However, where IP is critical to commercial success, such as where exclusivity or freedom to operate for a new product are essential, a thorough investigation into the value of the IP a company owns and its freedom to operate in view of third parties’ IP is required. Many transactions require some level of IP due diligence in-between. There are often various hypotheticals and unknown variables in IP, and so it is important to get the right level of strategically useful but proportionate, due diligence for each case.

Moreover, what can be more helpful than a simple overview of the current state of the IP is what the future potential of the IP is, and pragmatic advice on how to ensure the IP is best used to further and support the commercial aims.

Some transactions call for formal, detailed written reports, whilst for others informal reporting in person or by telephone is preferred.

Who should consider IP due diligence?

When entering into any transaction, be it a licensing deal, a business sale, or a decision to invest or to seek investment, IP may be relevant.  Almost all companies have some sort of IP, whether or not in the form of registered rights, and it is important to consider at least some level of IP due diligence before taking any significant business decision.

Are you looking to sell or license-out your own IP?
IP due diligence can be used to help promote your IP and ensure you receive what it’s worth.  Sometimes relatively simple adjustments to IP strategy can increase the value of the IP.

Are you looking to buy or license-in IP?
As well as checking that the IP rights you are acquiring are worth what you’re paying, you should consider what IP you already have and what effect this may have on the deal, e.g. cross-licensing opportunities that may be available.

Are you looking for investment in your company or for it to be acquired?
IP is important to investors and presented well can increase the value of your company.  Investors may ask difficult questions and it’s important to be able to answer these promptly and positively.

Are you looking to acquire or invest in a company?
Use IP due diligence to check the company has freedom to operate in its key markets and how useful the IP will be in keeping competitors out.  What could be the potential value of the IP and how can this best be realised once you have invested?

What does IP due diligence actually look at?

  • Formalities – What IP rights are there?  Are the formal requirements, such as recording ownership and payment of fees, in order? Which rights are granted and which are still pending? Are there any outstanding challenges, e.g. oppositions?   What is the lifetime of the IP?
  • Geographical coverage – Where does IP protection exist? Is this appropriate, considering the key markets and placement of competitors? What options are there for extending IP protection to other territories?
  • Validity – Are the IP rights valid?  If there are challenges, what likelihood do these have of success?  What scope might validly be granted for pending rights?
  • Scope – Do the IP rights cover something commercially useful?  This may take into account the company’s own products and services and those of the competition. Are there easy design-arounds? Are there any pending rights that could be directed to cover other commercially useful products?

The value of IP

Many companies are unaware of the value of their IP, and in turn, how they can leverage these assets.  The experts at Mathys & Squire believe in providing commercial, pragmatic and proportionate advice for our clients in order to help them raise funding, improve the marketability of their company, prepare a solid exit strategy, or strengthen their position through acquisition.

Portfolio management

Whether our clients are licensing their IP rights to others, or are seeking investment funds, their IP rights will come under intense scrutiny.  Our business-focused approach to portfolio management creates IP that will withstand that scrutiny, and we will provide the expert advice necessary to present the value of that IP to prospective licensees and investors.

Our experience

From helping to identify and capture IP assets to assessing IP agreements, ownership, scope, infringement and enforcement, Mathys & Squire has assisted many organisations with due diligence on third party IP (leading to strategic acquisitions and in-licensing). We have also helped guide and defend companies through rounds of due diligence in applications for funding and prior to acquisition.

We work with our clients, from advising counsel as part of a large M&A transaction and assessing potential gaps in an IP portfolio that might hinder a future strategy, through to advising on profitable licensing deals and go-to market strategies. Our experience in developing IP portfolios, as well as litigating IP disputes, allows us to determine quickly if there are weaknesses in the portfolio. We have worked with our clients to identify IP assets that are undervalued, and ready for further development.

Due diligence projects often require a rapid response. We work quickly and efficiently to conduct a detailed examination of a portfolio and provide pragmatic advice, which takes into account the whole picture. To find out more about how we can support your due diligence project, contact us today.

Miranda Kent
Managing Associate