IP due diligence - smoothing the path

Author Claire Baldock, Partner, Biotechnology & Life Sciences Group, Boult Wade Tennant.

The concept of due diligence is well understood by those who inhabit the world of finance. It is the process by which a purchaser of or an investor in a company or business investigates the records of the target to support its value and find out whether there are any 'skeletons in the cupboard'. The word 'target' is apt here because the investor will almost always want to shoot it at some point during the course of the investigations. It is a curiosity of financial transactions of this type that the purchaser or investor usually makes an 'in principle' commitment to proceed and a date is set for closing the deal before any due diligence on the target has actually been carried out. Consequently the later appearance of any skeletons is alarming for the investor and embarrassing for the target.

The importance of intellectual property rights to a business varies according to its nature but if the target is a technology-based company, then at some time during the frenzied due diligence activity someone will say "Has anybody looked at the patents?" Hopefully, this enquiry is raised quite early on in the process as it is never too soon to start IP due diligence. IP reports need to be prepared by specialist patent and trade mark attorneys and since IP is territorial, it may be necessary to appoint advisers in different geographical territories, It is important that the attorney or attorneys appointed have experience in carrying out due diligence exercises as they will understand the parties' requirements and will he able to assist in deciding what shape the report will need to take.

Deciding upon the scope of the due diligence investigations necessary in any particular instance is often the most difficult part of the whole exercise and can eat into valuable time needed to actually get on with the job. It is essential that everybody understands what is being done and, most importantly, what is not being done and the level of risk associated with not doing it. With IP which requires registration to secure a monopoly right - for example, patents, trade marks, designs, plant variety rights - one usually begins by investigating what rights actually exist, whether they are granted or still pending applications, whether they have been maintained in force in relevant territories and when they will expire. These basic status enquiries can usually be answered within a day or two since, with a few exceptions, on-line information is available from Patent Offices. Furthermore, the answers can be viewed with a comfortable degree of certainty by the attorneys and investors.