IP Due Diligence

What is the purpose of an IP audit/due diligence and when should one be conducted?

An IP audit aims to identify and assess the IP of a target company or its ability to derive value from its IP. For example, IP may be used to thwart competition, leverage advantage in licensing or industry collaborations, and generally defend or improve its market position.

An IP audit or due diligence investigation may be required when a company is being purchased or sold as a going concern or where the IP is being purchased or sold. Alternatively, a company may simply want to identify its own IP in order to properly manage its portfolio.

What does an IP due diligence involve?

The precise scope of an IP due diligence investigation and the specific objectives of the investigation depend on the circumstances and context. But an IP due diligence investigation could involve:

  • Understanding the target company’s business, products, services and market
  • Conducting an IP audit to identify the target company’s IP and verify its ownership
  • Assessing the validity and scope of the registered IP items in the portfolio
  • Mapping the target company’s IP to its products/services, to assess the relevance of the IP portfolio
  • Identifying the target company’s strategy in relation to the IP items in its territories of operation
  • Assessing the importance of the IP in relation to industry conditions and the competitive landscape
  • Assessing the target company’s freedom to operate
  • Considering the warranties provided by the target company in relation to the IP, in the context of the transaction

What does an IP audit involve?

The precise scope of an IP audit and the specific objectives of the audit depend on the circumstances and context. But an IP audit could involve:

  • Conducting name searches through various registers to identify the IP portfolio
  • Inspecting the relevant register for each item of IP, to determine its legal status, including renewal/maintenance fees, assignments or licences, disclaimers to the registration, etc.
  • Comparing products and processes of the company against the IP item to determine risk position
  • Determining whether any of the IP items are the subject of any litigation
  • Assessing use of trade marks and whether registrations are liable for expungement on the grounds of non-use
  • Identifying key pieces of know-how or trade secrets and significant copyright works
  • Reviewing agreements relating to IP, including employment agreements, R&D agreements, co-existence agreements and in and out licence agreements