
Alliance Center for
Intellectual Property Rights
DUE DILIGENCE OF PATENT PORTFOLIO AT THE TIME OF ACQUIRING A COMPANY
July 15, 2024
*Ms. Bindu Sharma
**Ms. Bhavya Sharma
INTRODUCTION:
During Merger and Acquisition (M&A) of a company there are manifold considerations that need to be looked at. One such consideration, an important one, is the Intellectual Property (IP) of the company, especially in the form of patents. The due diligence of the patent portfolio plays a crucial role in not only understanding and evaluating the market value of the portfolio, but also to keep in mind the liabilities that may accrue to maintain such patents in various jurisdictions. Due diligence of the portfolio also ensures that all patents including family patents are docketed, screened, valuated, and transferred in an effective manner and to finally evaluate the value, market potential and liabilities of the acquiring patent portfolio. While it is important that due diligence of other IP forms such as trademarks, designs and copyrights are also performed, this article will primarily focus on the patent portfolio of the company.
IP AUDITS:
To initiate due diligence of a patent portfolio, the first and foremost step is conducting an IP Audit wherein all granted patents and filed applications (collectively termed as patent documents) should be listed and compiled, followed by checking the legal status of the patent documents in every country they are filed or granted. In the case of patent applications, it is necessary to check if there are any pending actions against them in terms of responding to any office action or payment of any pending fees.
In case of granted patent applications, it is important to perform legal status checks of those patents. If the patent is expiring soon, it may not be of much value to the company. For granted patents, a check must be performed to see if any action is needed to maintain such patents.
Registered IP should be docketed to keep a watch on important official timelines such as responding to official communication or payment of renewal to maintain it. As part of docketing, it is worthwhile to note down the term of the IP which remains. For instance, if there remain only a few months for a patent to expire, it may not be best decision to transfer the patent to the buyer as transferring a patent requires amendments in its forms which may neither be advantageous to the buyer nor the seller.
Additionally, gathering information related to apposition, revocation, litigation or infringement of the patents of the company is also crucial.
RELEVANCE OF PATENTS FOR THE BUSINESS:
The patent portfolio that is to be acquired may contain certain patents may be irrelevant to the buyer’s business. In such cases, there may be not much use in transferring such patents the buyers’ company. Instead, alternatives such as out licensing the IP may be explored, or, if the IP is not strong enough to be registered, it may be published as a research paper as well. Sometimes, companies also consider donating some of their IP or abandoning it or letting it expire, depending on the relevance and importance of such IP for the business.
CATEGORIZATION OF SIMILAR PATENTS:
To determine the valuation of patents, similar patents may be categorized together, and appropriate methodologies should be used to ascertain their collective value. Depending upon the value of patent portfolio, the decision to retain or license may be taken.
TRANSFER OF RIGHTS:
Acquisition of a patent portfolio is complete only after the amendment is made in the name of the patentee and is done in the respective patent office. Therefore, it is pertinent to get in touch with the attorney who oversees the case to ensure that such amendments are made in time. This process also involves payment of certain sums as government and attorney fees.
UNDERSTANDING LIABILITY:
The buyers must know acquiring IP of another company brings a lot of liabilities with it. To get the IP transferred in the name of the buyers, at the time of acquisition, a lot of amendments are to be made in the official records in the office where such IP is registered. Most times buyers prefer in a change in the attorney handling such cases as well, which may lead to additional expenditure for them. Even after the IP is acquired and the required amendments are made in the official records, other liabilities such as annual fees to maintain the IP also must be assessed regularly. Further, if any of the IPs are undergoing litigation or are opposed, due diligence must be performed to ascertain the stage and the further course of action.
It is therefore evident that conducting exhaustive due diligence of patent portfolios is extremely important to understand the relevance, importance, value and liabilities before acquiring them.
REFERENCES:
- Restaino, L.G., 2006. Understanding Your Patent Portfolio. BioProcess International.
- Meilman, E.A. and Brady Jr, J.W., 2014. Due diligence in transactions involving intellectual property. The Licensing Journal, 34(10), pp.15-23.
- Castaner, X., Desyllas, P., Javaid, H. and Marsili, O., 2022, August. Explaining the Length of the Due Diligence Process in Technology Acquisitions: How Long Should Acquirers Examine a Desired Target Before Deciding or Not to Acquire it?. In Strategic Management Society Meeting.
- Wilson, A.E. and Decarlo, J.J., 2003. The intellectual property (IP) audit: an effective IP asset management tool. Journal of biomolecular screening, 8(1), pp.96-99.
- Heines, M.H., 2007. Patents for business: the manager's guide to scope, strategy, and due diligence. Bloomsbury Publishing USA.
- Risch, M., 2013. Patent Portfolios as Securities. Duke LJ, 63, p.89.
- Robins, M.B., 2008. Intellectual property and informative technology due diligence in mergers and acquisitions: A more substantive approach needed. U. Ill. JL Tech. & Pol'y, p.321.
Authors:
*Ms. Bindu Sharma
CEO, Origiin IP Solutions LLP
Bengaluru.
**Ms. Bhavya Sharma
BBA LLB Hon’s, Jindal Global Law School
Sonipat, Haryana.
Disclaimer: The opinions expressed in the article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of the Alliance Centre for Intellectual Property Rights(ACIPR) and the Centre does not assume any responsibility or liability for the same.