Why conducting IP due diligence is crucial before a transaction
The assessment of the IP risk involved in a transaction, such as a sale and acquisition of a business or a financial investment in a business, is known as IP due diligence. The state and enforceability of IP, ownership, inventorship, freedom to operate, possible or actual third-party challenges, and licensing activities will all be examined as part of a normal IP due diligence process. Depending on the specifics of the transaction, each of these will be looked at to varying degrees. However, being aware of the IP assets that are owned or are a part of the sale is a crucial step in assisting with effective due diligence.
It is crucial to conduct an IP inventory and maintain a current list of IP assets. There may be public registries where you can find information about IP rights that are registrable. It’s possible that certain registrable rights haven’t been made public yet, and other significant IP assets like trade secrets and know-how are obviously private. Before discussing such assets, confidentiality agreements with potential investors or buyers are crucial.
Potential Effect On The Transaction
The sale price of a firm, whether a sale or purchase of a business closes, or if a company can receive investment from private equity or a VC Investor, for example, and the terms of that investment, can all be materially impacted if possible deficiencies in a company’s IP strategy are discovered. This is why a company where IP is likely to be a valuable asset, like a technology-based company, should really establish its IP strategy early on in order to ensure that it is in line with the business plan, especially where future investment from private equity or a VC is required or where the exit strategy is a trade sale, M&A, or an IPO.
There is no one size fits all method for conducting IP due diligence because the importance of IP to each transaction or financial venture will differ. The lawyers can determine the optimal IP approach to advance corporate objectives and ensure a high rate of return on investment.
