IP DUE DILIGENCE
The Intellectual Property (IP) owned by a company may be one of its key assets. Conversely, if a company does not have the freedom to run its business due to third party IP rights, this may significantly impact on its ability to operate effectively, and therefore on its value.
“IP due diligence” is the assessment of the IP owned or used by a company, or of third party IP rights which may impact on the company’s business. IP due diligence can therefore be critically important in deciding whether to purchase or invest into a company, or enter into some other agreement with the company where IP is a factor.
Mewburn Ellis LLP has extensive experience in advising parties on all aspects of IP due diligence. Whatever the scenario, we understand the importance of adopting a flexible approach in which we work closely with the client to ensure we provide advice which is clear and appropriate for their purpose, and is consistent with the time and resources available.
IP due diligence will typically involve one or more of:
The need for “IP due diligence” arises in many different circumstances for our clients. Below are a few examples of types of IP due diligence which Mewburn Ellis LLP carries out for our clients:
Initial Public Offering (IPO): as part of their IPO, it may be necessary to prepare a report for our client describing their IP strategy, IP holdings and known freedom to operate issues. We can work with the various parties involved in the float, including the banks, lawyers and of course the client, to ensure that the report meets their needs. We are adept at liaising with these parties and agreeing cooperative strategies to ensure the process is efficient and effective, and the report is compliant with the relevant legislation governing the company listing.
Trade-sale, M&A, inward-investment or licensing: as with IPO this will typically involve preparing an IP report for our client.
For existing clients for whom we act as advisors, we may be asked to describe, explain and promote their IP position to potential partners (purchasers, investors, licensees) who will be conducting their own due diligence on our client.
Even for clients for whom we do not act as advisors, we can nevertheless prepare an ‘external’ report on their IP position. The purpose of such a report is to provide an objective analysis, by a well respected firm of attorneys, of their IP position. They can then provide this to potential partners to facilitate a deal. The process of preparing such a report prior to a possible transaction may help to identify real or potential weaknesses in the client’s IP position. This means that thought can be given at an early stage about how to deal with, or present, those weaknesses to potential partners.
As well as reports, we may be involved in making personal presentations to potential partners of our clients, which may range from multi-national companies to VCs, and in responding to questions from those potential investors about the IP position of our client.
Where we provide reports to a client hoping to sell or licence all or part of their company or IP, it may be agreed that (subject to certain conditions) potential purchasers can rely on those reports such as to reduce the need for, or at least the extent of, that purchaser’s own due diligence.
IP reports or services for buyers, investors or licensees: on the other side of the fence we have extensive experience in providing analysis for clients who want to understand the IP position of a potential target, investment opportunity or partner.
This may involve full-blown IP due diligence, including careful assessment of granted or pending patents or trade marks, prior art or freedom to operate searching, and targeted questioning of the company or their attorneys on key IP issues.
Alternatively, where full due diligence is not appropriate, we can provide a succinct analysis of key IP issues.
Because we have extensive experience in advising, obtaining and challenging IP rights for our clients, we can often provide a useful and relevant opinion on a company’s IP position even without a lengthy or detailed analysis of their entire IP estate. We have found this is particularly appreciated by VCs and other investors who want a quick and focussed assessment of only the most critical IP issues.
In addition to its Patent and Trade Mark Attorneys, Mewburn Ellis LLP has a team of qualified and experienced IP Lawyers. Our IP Lawyers provide their expertise to due diligence exercises alongside our Attorneys, or separate from them, depending on what is required for the deal. They are also experienced in working alongside external teams of lawyers to deliver corporate deals.
Whether for an M&A transaction, an acquisition or disposal of IP asset, or an important commercial transaction involving IP, our IP Lawyers can conduct due diligence on the IP to support the transaction, including preparing or responding to IP due diligence questionnaires, reviewing IP contracts such as licences or collaborations, checking entitlement (ownership) of the IP, formalities and encumbrances on that IP. They help our clients, or their corporate advisors, to draft and negotiate disclosure letters and the warranties and indemnities in the transaction document (for example a Sale & Purchase Agreement or a high value Patent Licence). The can also advise on, and draft and negotiate, any necessary IP contracts required for the deal and they can administer and arrange the often complex formalities of recording the IP throughout the world.
Whatever the scenario, Mewburn Ellis LLP understands the importance of a flexible approach that establishes the needs of the client at the outset. We can work closely with all clients, whether or not they are experienced in IP, to ensure that the deliverable is appropriate for their purpose, and balances the risk they are willing to accept with the resources they are willing to expend on their due diligence. Where appropriate, we have the capacity to put together large teams of experienced attorneys and lawyers for the due diligence, even at short notice, to ensure the work is completed in the required time frame. Any report which we write will be clear and relevant, will highlight what has and has not been done, and will always be tailored to the needs of the client for the matter in hand.
For example, when preparing reports for our clients about their IP, we understand the need to present their IP in a manner consistent with their aim of attracting the attention of potential partners. This will typically involve highlighting the strengths of the IP and how it supports their business strategy, and dealing constructively with potentially challenging questions from the potential partner, while of course being objective and defensible in any statements we make.
When preparing reports or advising potential investors about a target company’s IP, we recognise the criticality of understanding the key drivers for the deal. A flawed IP position may be a deal-breaker, but more often the strength of the IP position is only one element of the overall analysis. However, even where the IP does not appear to be a critical driver at the outset, performing even basic IP due diligence may reveal problems which have a bearing on the final deal structure or price.
Our experience in this area means that once we understand what the client wants to achieve, we can always make suggestions about the most appropriate way to proceed, having due regard to budget and time scale which are inevitably key factors in any transaction.
This information is simplified and must not be taken as a definitive statement of the law or practice.