Intellectual Property Due Diligence Investigations in Mergers & Acquisitions
Intellectual property due diligence investigations should be conducted by a party any time a merger, acquisition (“M&A”) or investment is being considered. IP due diligence involves gathering information on the target party’s assets/liabilities to assess the merits and risks of the transaction. One of the most important assets of the target party may be its intellectual property. These intellectual property assets could include patents, trademarks, trade dress, copyrights, trade secrets, and domain names.
Case Law on Due Diligence Importance
Perhaps the greatest cautionary tale supporting use of intellectual property due diligence investigations is a 1998 purchase by Volkswagen AG. Volkswagen AG paid $795M for Rolls-Royce Motor Cars Ltd., but soon discovered the Rolls-Royce trademark wasn’t part of the deal. Rolls-Royce PLC had gone into receivership in the 1970s while Rolls-Royce Motor Cars Ltd., was sold to a third-party company. The trademark had been retained by Rolls-Royce PLC (licensing the use of the brand to the third-party company). After the sale by the third-party company to Volkswagen AG, Rolls-Royce PLC sold the trademark to its engine-manufacturing partner BMW (who had delivered notice that it would discontinue the manufacture of such engines). Volkswagen AG spent $795 million for a luxury car company, but couldn’t use the Rolls-Royce brand name. Additionally, they ended up with no engines for its cars.
When to Begin Due Diligence Investigations
With respect to mergers and acquisitions, target parties sometimes conduct intellectual property due diligence investigations. For example, to place itself in a better negotiating position. However, the acquiring party typically conducts the diligence investigations. The intellectual property due diligence investigations should begin before even engaging the target party. The acquiring party should first conduct a thorough review of all publicly available information. They should compile a list of patents, trademarks, copyrights, domain names and other intellectual property assets of the target party. Next, the acquiring party should identify proper ownership in the assets, as well as any liabilities associated with those assets. Liabilities related to intellectual property assets include infringement claims, as well as rights granted to third-parties under any licensing agreements.
Non-Disclosure Agreements In Due Diligence Investigations
The parties should enter into and execute a non-disclosure agreement (or “NDA”). A non-disclosure agreement should outline the confidential information the parties wish to share with one another. The NDA provides a method by which the parties must protect confidential information from third parties. Then, the acquiring party can request a detailed IP portfolio of the target.
Valuing Intellectual Property
An intellectual property portfolio includes patents, trademarks, copyrights, trade secrets and other intellectual property assets. Parties can use an IP portfolio to confirm title and ownership of assets. In order to determine the potential value of the assets and the associated risks, the acquiring party should evaluate all intellectual property assets seeking: (1) the ownership and control of each asset; (2) the economic and strategic value of each asset; and (3) the liabilities associated with each asset.
Parties should utilize IP due diligence investigations before finalizing any M&A deals. Due diligence investigations help provide a thorough picture of the assets involved in a M&A transaction.
About the Firm:
Klemchuk LLP is an Intellectual Property (IP), Technology, Internet, and Business law firm. The firm offers comprehensive legal services including litigation and enforcement of all forms of IP as well as registration and licensing of patents, trademarks, trade dress, and copyrights. The firm also provides a wide range of technology, Internet, e-commerce, and business services including business planning, formation, and financing, mergers and acquisitions, business litigation, data privacy, and domain name dispute resolution. Additional information about the IP law firm and its IP law attorneys may be found at www.klemchuk.com.
Klemchuk LLP hosts Culture Counts, a blog devoted to the discussion of law firm culture and corporate core values with frequent topics about positive work environment, conscious capitalism, entrepreneurial management, positive workplace culture, workplace productivity, and corporate core values.
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About the Firm:
Klemchuk LLP is a litigation, intellectual property, transactional, and international business law firm dedicated to protecting innovation. The firm provides tailored legal solutions to industries including software, technology, retail, real estate, consumer goods, ecommerce, telecommunications, restaurant, energy, media, and professional services. The firm focuses on serving mid-market companies seeking long-term, value-added relationships with a law firm. Learn more about experiencing law practiced differently and our local counsel practice.
The firm publishes Intellectual Property Trends (latest developments in IP law), Conversations with Innovators (interviews with thought leaders), Leaders in Law (insights from law leaders), Culture Counts (thoughts on law firm culture and business), and Legal Insights (in-depth analysis of IP, litigation, and transactional law).