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Intellectual property due diligence m&a white paper 2012


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Intellectual property due diligence investigations should be conducted by a party any time a merger, acquisition (“M&A”) or investment is being considered. Intellectual property due diligence involves the gathering of information on the target party’s assets and liabilities, in order to assess the merits and risks of the transaction

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Intellectual property due diligence m&a white paper 2012

  1. 1. Intellectual property due diligence investigationsshould be conducted by a party any time a merger,acquisition (“M&A”) or investment is beingconsidered. Intellectual property due diligenceinvolves the gathering of information on the targetparty’s assets and liabilities, in order to assessthe merits and risks of the transaction. One of themost important assets of the target party may beits intellectual property. These intellectualproperty assets could include patents, trademarks,trade dress, copyrights, trade secrets, and domainnames.Perhaps the greatest cautionary tale supporting theuse of intellectual property due diligence is a 1998purchase by Volkswagen AG. Volkswagen AG bid andpaid $795 million for Rolls-Royce Motor Cars Ltd.,but soon discovered that the Rolls-Roycetrademark was not part of the deal. Rolls-RoycePLC had gone into receivership in the 1970s and whileRolls-Royce Motor Cars Ltd., had been sold to athird-party company, the trademark had beenretained by Rolls-Royce PLC (licensing the use ofthe brand to the third-party company). After thesale by the third-party company to Volkswagen AG,Rolls-Royce PLC sold the trademark to its engine-manufacturing partner BMW (who had deliverednotice that it would discontinue the manufacture ofsuch engines). At the end of the day, Volkswagen AGhad spent $795 million for a luxury car company, butcould not use the Rolls-Royce brand and had noengines for its cars.With respect to mergers and acquisitions,intellectual property due diligence is sometimesconducted by the target party (e.g. to place itself ina better negotiating position), but is typicallyconducted by the acquiring party. The intellectualproperty due diligence investigation should beginbefore even engaging the target party. Theacquiring party should first conduct a thoroughreview of all publicly available information,compiling a complete list of all the registered
  2. 2. patents, trademarks, trade dress, copyrights,domain names and other intellectual propertyassets of the target party. Next, the acquiringparty should determine the current registeredowner for each of those assets, as well as anyliabilities associated with those assets. Liabilitiesrelated to intellectual property assets includeinfringement claims, as well as rights granted tothird-parties under any licensing agreements.After all publicly available information is evaluatedand a full and accurate picture of the targetparty’s intellectual property assets has beencreated, a non-disclosure agreement (or “NDA”)should be executed between the parties. A non-disclosure agreement should outline theconfidential information the parties wish to sharewith one another and method by which the partiesmust protect that information from third parties.Once a non-disclosure agreement is established,the acquiring party can request a detailedintellectual property portfolio of the target party.An intellectual property portfolio would includeall patents, trademarks, copyrights, trade secretsand other intellectual property assets and can beused to confirm titled to owned assets and ensurethat the titles to such assets can be transferred.In order to determine the potential value of theassets and the associated risks, the acquiring partyshould evaluate all intellectual property assetsseeking: (1) the ownership and control of eachasset; (2) the economic and strategic value of eachasset; and (3) the liabilities associated with eachasset.It is of utmost importance that a detailed andthorough intellectual property due diligence isconducted before any deal is finalized and thespecifics of the associated patents, trademarks,copyrights and other intellectual property assetshave been established by the acquiring party.