Fall 2014 issue of Horizons

If the issues or risks are serious enough, it may lead to the investor walking away from the transaction altogether. Thus, a thorough IP strategy, which includes in-house IP due diligence, is an important consideration for any company with a heavy reliance upon IP. An internal IP due diligence process should be closely related to a company’s overall IP strategy. So what should a company be doing as part of its IP due diligence process? ∙ Inventory – A comprehensive listing of all IP assets owned and/or licensed, including patent/trademark/copyright expiration dates and any owned but unused IP (Note: If your company utilizes provisional patents, you will want to make sure to keep a close eye on the deadline for filing a full patent) ∙ Records – These might include patent applications and other filings, patent and trademark registrations, history of infringements, history of prosecution and awarded damages, lost value of IP based on infringements, etc. ∙ Controls – Policies and procedures and other internal control infrastructure that are designed to protect your IP portfolio ∙ Assessments – IP overviews and other reports that provide context such as stage of development and commercialization, potential market opportunities, and competitive assessments ∙ Agreements and documents supporting freedom to operate – This will include all technology in-licensing and out-licensing agreements and amendments and documents supporting ownership of, or rights to, assets ∙ Valuations – Internal and external valuations of the IP portfolio or assets comprising the portfolio While there is not a one-size fits all strategy, there are certain IP areas to focus on:

∙ Identifying gaps in the IP portfolio (e.g., freedom-to-operate issues)

∙ Identifying weaknesses in IP strategy (e.g. weaknesses in internal protections)

∙ Creating a strategy to mitigate risks to the IP portfolio (e.g. internal controls)

∙ Maximizing the effectiveness of the IP strategy to maximize IP value

∙ Streamlining an acquirer’s or investor’s due diligence process

∙ Assessing the cost and benefit of the mode of protection (e.g. patent v. copyright v. trade secret) Failing to adequately incorporate IP due diligence into your IP strategy has costs, such as the risks of:

∙ Failing to properly maintain legal registrations and protections around your IP portfolio

∙ IP misappropriation

∙ Liability for infringement of others’ IP

These risks, left unmitigated, can result in damage to your IP portfolio and your company’s value. In addition, in the context of a potential exit (such as an acquisition or IPO) or another liquidity event (such as an additional financing round), failing to be proactive in your own internal IP due diligence could result in:

∙ A lower valuation

∙ Delayed consummation of the deal

∙ Failure to execute the deal entirely

If a potential acquirer or investor identifies gaps in your IP portfolio or other potential risks or issues, it may delay the liquidity event as additional follow-up due diligence is performed, which also has the potential to reduce the valuation placed on your company or IP.

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