At the time of 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
In order 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 is in charge of 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 be aware of the fact that acquiring IP of another company brings a lot of liabilities with it. In order 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 have to 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.
Author: Bindu Sharma (CEO, Origiin IP Solutions LLP), Bhavya Sharma (BBA, LLB student of Jindal Global Law School)
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