Due diligence of intellectual property

Due diligence of intellectual property

High qualification and high responsibility

Among parties of transactions involving investment of significant funds, the procedure of due diligence is becoming increasingly popular, making it possible to evaluate an investment object from a financial, commercial and legal point of view, to determine the advantages and disadvantages of a future operation.

Whereas previously tangible assets (factories, equipment) represented the main value for enterprises, now it is intangible assets, like intellectual property, that are playing an increasingly important role. Due diligence of intellectual property aims at an objective assessment of the value of all or some of the IP objects, as well as the risks associated with use thereof. It is especially important when it comes to long-term business relationships, for example, in the case of a licensing agreement.

The results of this procedure help to make the final decision regarding the legality and profitability of the prospective transaction, allow you to determine the main provisions of the future contract, including the final cost and future obligations.

From outside it might seem that the main burden of responsibility falls on the investors, and therefore only they should conduct due diligence of intellectual property. However, the risks associated with the transaction affect both parties, so each of them is recommended to conduct an independent evaluation procedure.

The need for due diligence appears not only in the case of acquiring IP objects, mergers and acquisitions, but also when checking the efficiency of protecting IP objects in all markets of interest and the efficiency of the existing system of managing IP objects in general.

It should be noted that there are no special legislative acts that regulate this procedure, therefore the volume and type of information subject to a comprehensive assessment will vary depending on the specific situation. In general, during the due diligence procedure, the following stages may be distinguished:

  1. Drawing up a list of the IP objects owned by the company.
  2. Verification of documents confirming the IP objects registration. Determination of the scope of the rights provided by such documents, for example, in the case of analyzing the claims of a patent for an invention, utility model.
  3. Verification and analysis of contracts concluded with regard to IP objects (licensing agreements, agreements on the assignment of rights).
  4. Check the use of IP objects.
  5. Verification of documents for the assignment of copyright, in the absence of such documents – their preparation.
  6. Analysis of the rights to IP objects from the point of view of existing or potential violations both by third parties and by the company that conducts due diligence procedure. In the case of violations, it is necessary to develop a strategy of protection.
  7. Report containing conclusions and recommendations.

For example, according to part 4 of the Art. 18 of the Law of Ukraine “On the Protection of Rights to Marks for Goods and Services”, if within three years from the date of publication the mark is not used in Ukraine in full or in relation to part of the goods and services indicated in the certificate, “any person has the right to apply to appeal to the court with a declaration for fully or partially pre-term termination of the certificate validity.” In such a situation, the scope of protection of the mark may appear to be weaker than its owner suggests.

As a result of the due diligence procedure, a report is compiled, by reading which the ordering customer gets an idea of the status of IP objects and their values. In the future, the company may take into account the recommendations indicated in the report and improve the strategies for managing intellectual property rights.

If you need assistance with the due diligence procedure, please contact us! Our specialists will answer all your questions and provide all necessary services.