The strength of a company’s intellectual property assets can affect the value of a corporate transaction. According to the Council for Entrepreneurial Development, North Carolina businesses raked in over $600 million in equity funding during 2016, completed over 200 deals, and at least 25 companies were successfully acquired. While merely accomplishing such feats should be heralded, just as critical is ensuring that close attention was paid to intellectual property (IP) concerns, both well-before and during a financing event or possible exit. By performing IP due diligence, each of the involved parties can best mitigate risk and ensure that decision-making is well-informed. Additionally, by having a robust and forward looking approach to IP matters, a company can increase their valuation, reduce risks from competition, and better position themselves relative to their competition to make for a more attractive acquisition or financing target.
In an acquisition or commercial partnering setting — such as licensing deals — intellectual property due diligence is often one of the most critical aspects to any negotiation, especially as it relates to chain of title. Issues with chain of title for IP assets have been known to delay or entirely stop a merger or acquisition, as well as impact the value of licensing or purchasing intellectual property. Further, in order to secure equity financing or investments, provide representations and warranties as to IP ownership, and to bring a cause of action for IP infringement, the IP chain of title must be properly established. Specific rules and court holdings relating to chain of title for IP matters make this an area of frequent concern in many closings.
When performing due diligence, it’s essential to review the existing patent and intellectual property portfolio, any existing supplier or customer agreements that may impact patent ownership, any licensing agreements entered into by the relevant parties, and employment agreements with employees of the relevant parties. Oftentimes, the passage of time from the execution date of agreements towards a possible closing convolutes and compounds problems that may have existed. Furthermore, the legislation and court holdings impacting IP ownership are ever changing as IP becomes more valuable as an asset for growing companies, so a constant and routine review of IP matters can be advantageous.
Over the years, NK Patent Law has worked frequently in IP due diligence matters on behalf of angel groups and venture capital firms, and on behalf of companies acquiring other businesses in a merger and acquisition setting. It’s important to us that our clients have IP ownership assured, along with sufficient patent scope and validity and trademark clearance. Some examples of due diligence situations we’ve been involved with include:
– A software company acquired Intellectual Property and other assets of a competitor, then shortly thereafter sold the acquired assets for a significant return on investment.
– Formulating aggressive acquisition strategy for a health care company for a mobile application software program. In this example, significant issues with IP matters were discovered, saving the client significant amounts of capital that would have been required to cure such defects.
– Potential acquisition by a Venture Capital Firm of energy monitoring services and goods provider.
– Assuring chain of title on several hundred patent and patent application portfolios before acquisition.
– Audit of license agreements where prior counsel had instructed a licensee to pay in excess of two million dollars a year in patent royalty fees that were not required.
To learn more about intellectual property ownership issues, you may review attorney Justin Nifong’s presentation materials on this topic here.
For more information on IP due diligence, email firstname.lastname@example.org