In the contemporary business landscape, Intellectual Property (IP) is emerging as one of the most important assets that a company owns. Intellectual Property is increasingly occupying a central role in any overall business and growth strategy of an organization. By effectively managing and optimizing IP, the organizations stand to derive maximum benefits and gain a competitive edge. However, IP Due diligence is extremely critical to identify the ways IP shall be identified, safeguarded, monetised & enforced.
IP due diligence & its objective
Every business possesses one or the other form of Intellectual Property and most of the times, such IP is either under-utilised or un-identified. Though it may not be required to register all IP assets, it is pertinent or rather crucial to identify it to take decision on whether it is worth registration or not.
Any investigation or exercise that aims to determine the health, validity and value of intangible assets like IP, forms part of IP due diligence. IP due diligence is a set of parameters required to have in a company to ensure that IP:
- is not misappropriated or leaked from the company,
- is protected in right legal framework,
- is brought to the market at right time, either by itself or by licensing it out, and
- infringement analysis is done at right time to prevent infringement of third party’s IP rights,
- systems & processes are created to monitor unauthorized use of own IP by the third party (ies).
The primary objective if IP due diligence is to realize full value of IP assets by identifying them, take strategic decision about safeguarding them and further formulate a clear roadmap detailing the steps for the effective management.
Steps involved in IP due diligence
The main purpose of IP due diligence is to assess & optimise value of IP and mitigate the risk associated with its loss or infringement. The IP due diligence steps and strategies may be different for each company depending upon area of business, skill set of employees, kind of core IP and jurisdiction, however, this article focusses on the general steps. It is recommended to take expert legal advice to formulate customised steps for effective IP due diligence for your company’s specified needs.
Step 1: “As-is” IP assessment
Before we dig further into IP due diligence, it is crucial to understand and determine the IP that a company owns. Spotting IP and identification of right legal framework in which IP shall be registered is found to be challenging by majority of the organizations. Most of the IP can be registered in the form of patent, copyright, design or trademark. In addition to this, there may be a possibility to protect some form of IPs as trade secret as well. Certain steps like patent/trademark search right in the beginning may be extremely useful to create a stronger IP and give right direction to the R&D efforts. Investigations like patent landscape are helpful to understand global trends related to evolution of the technology.
Step 2: Leakage of IP from the company
Like any tangible form of property, IP also needs protection. However, owing to its intangible nature, sometimes it becomes challenging to take right steps to safeguard such crucial IPs. First of all, one must identify the channels through which IP leakage happens. Most of the times, IP leakage happens through ex-employees, consultants, customers etc, knowingly or unknowingly. Some of the ways to seal these leakage points are as below:
- Have stringent agreements with employees, vendors, customers, consultants
- Periodic IP sensitization programs in the company
- IP Policy detailing security and confidentiality & security clause
- Label confidential files as ‘Confidential’
- Restrict access to confidential information of the company
Step 3: Strengthening existing IP
Review of literature is an important step in the new product development process because without knowing what is already been done, strong IP cannot be created. The wealth of knowledge available in the form of patents or paper publication can be immensely helpful to create more innovative products and reduce R&D cycle. At the time of new product development, if a thorough patent search is done and expert advice is sought, there may be a possibility for the companies to leverage some of the good patents which are either abandoned or expired or not filed in the desired jurisdictions. However, this shall always be done with expert advice and jurisdiction-based opinion on patent infringement risk.
Step 4: IP protection in right legal framework
Broadly speaking, a company may have IP which may or may not be registered. Invention, design, brand name can be registered as patent, design and trademark respectively whereas confidential information or trade secret can be protected by maintaining secrecy of it. In order to protect confidential information or a trade secrets, clear and stringent processes, policies and practices shall be devised. Some of the examples of trade secret are recipe of Coca-Cola, chicken recipe of KFC etc. For any information to be qualified as a trade-secret, following conditions shall be fulfilled:
- Information shall not be known to the public,
- It shall be valuable for business,
- Owner should have taken sufficient measures to protect it.
Spotting IPs in a product, identifying the right legal framework to protect it at a right time shall be done by the experts sothat the product is protected in the best possible manner.
Step 5: Infringement risk assessment
IP infringement refers to unauthorized use or encroachment upon the IP rights of a third party (ies), and its consequences can be fatal. IP infringement risk analysis shall be done before the product launch to understand if there is any infringement risk. Jurisdiction specific opinion by the legal expert on IP infringement may be helpful to mitigate the infringement risk. Further, periodic IP audits shall be performed to identify external software downloads.
Step 6: IP commercialization
Creation of IP requires significant investment in terms of time, money, and resources. Every good investment should yield returns and therefore, it is reasonable to say that when companies spend money to create IP, they must explore the ways to recover that investment by commercialization of IP, either on their own by integrating such IP onto their products or licensing it out to other potential partners who may bring such IP in the market.
Step 7: Enforcement of rights
One of the reasons for the companies to spend money in R&D and IP registration is to attain competitive edge in the market and create a boundary for the competition. Therefore it becomes important for the companies to be vigilant about unauthorised use of IP by the third party (ies) and they should enforce their rights in case IP infringement happens.
Conclusion
IP due diligence is indispensable for any business aiming to create, exploit, enforce their IP in most effective manner, especially when competition is ever increasing, and business sustainability depends on being “ahead of the curve”. Establishing a strong and robust IP regime that incorporates proper processes, practices, policies and agreements with an aim to optimise benefits of IP created and owned by any company, is of paramount importance.
Authors: Bhavya Sharma, Bhuvnesh Sharma
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