When a business sells or purchases intellectual property, conducting IP due diligence is an essential step. This enables the buyer to make an informed decision and reduces the risk for both parties involved.
Establishing an IP due diligence checklist is a useful tool to keep the investigation focused and efficient. It may also serve as guidance if things take an unexpected turn.
Create an IP due diligence checklist
A thorough review of intellectual assets is not possible without a due diligence checklist. Here are some steps you can follow to create an IP due diligence checklist:
Identify the scope
Before creating the checklist, identify the scope. This includes the type of IP assets that will be reviewed, as well as the geographical scope and purpose.
Research
Review the relevant laws, regulations, and industry standards.
Identify relevant categories
Identify the categories of IP assets that will be reviewed, such as patents, trademarks, copyrights, trade secrets, and domain names.
List items to review
Create a list for each IP asset category. Items to be reviewed for patents might include licensing, validity, ownership, and infringement.
Prioritize Items
Sort the items in the list according to their importance and relevance for the review.
Checklist
Re-examine the checklist, and make any necessary changes. Ask for input from the other team members to make sure that you cover all aspects of the review.
Test the checklist
Conduct a mock-up review to make sure that the checklist is thorough and effective.
Update the checklist
Update it periodically to keep up with the latest changes in industry standards and laws.
In general, thorough research is required to create an IP due diligence check list. It also requires that the review’s specific needs are taken into consideration. A well-designed checklist can ensure that all aspects of the review have been covered, and facilitate an effective and comprehensive review of IP assets.
1. Patents
Patents are legal rights granted by government authorities to inventors that protect their inventions from unauthorized use or production. Typically, patents last 20 years and prohibit others from reproducing, using, or profiting from the invention.
A patent protects an invention, process, design, or method that is novel and not widely known. It includes a detailed description of the invention, drawings illustrating its components and details, as well as legal claims outlining what the invention actually is in legal terms.
When conducting IP due diligence, the first thing to investigate is patent validity. This can be confirmed with local IP approval bodies in each region where the patent was registered to confirm that it remains valid. Keeping in mind that invalidated IP cannot be acquired.
Another advantage to researching patents is that they provide protection for your business against infringement. If someone uses your patented idea without authorization, they could be sued for patent infringement and you will gain an advantage over them and potentially monetize the technology – great news for your company!
It is also possible to obtain a patent on an idea that incorporates well-known elements, but which still stands alone as unique and inventive. Examples of this include Amazon’s one-click ordering system and Netflix’s movie rental service.
To safeguard your business against competitors, ensure the patent claims you submit are accurate and comprehensive. This includes making sure the patent remains current with both current products as well as those to come.
When examining the validity of a patent, you should look for evidence that it is being utilized and for what purpose. You can locate this information in both its filing office and assignment database.
If you would like to learn more about patents, the USPTO website provides helpful information. Alternatively, contact a patent attorney for additional assistance and guidance.
When creating an IP due diligence checklist, the primary objectives are to detect potential issues with intellectual property assets and determine if those should be excluded from the transaction. An IP due diligence checklist typically consists of a series of questions that need answering, followed by a results section providing answers.
2. Copyrights
Copyrights are intellectual property (IP) that safeguards original works such as movies, music, software and books. They are usually granted for a finite period of time but may be extended by law in certain jurisdictions.
They are an effective tool to prevent copyright infringement and ensure fair compensation for the work’s creators, but it’s essential to note that they do not replace patents and trademarks.
A company’s copyrights should be assessed as part of a thorough IP due diligence investigation to determine if they own any copyrighted materials and how. This includes evaluating the chain of title for all copied assets owned by the business and noting any potential encumbrances such as pending litigation or third-party challenges that may affect these assets.
It is wise to check if the company has any copyright licenses in place. This is essential since a company’s copyright rights are controlled by its license agreements, not just its original registration of copyright rights.
Contrary to patents, there is no requirement for creative work in order to qualify for copyright protection. Even casual letters or collections of information with some originality in selection or arrangement – such as anthologies or bibliographies – can be safeguarded under copyright laws.
In most cases, copyrights belong to the author. However, in certain instances such as “works for hire” or works created by employees of a company or contractor, then ownership of these rights rests with their employer.
Another important consideration in copyright due diligence is whether the rights are subject to any limitations that go beyond what is allowed by law. For instance, it’s often practiced to impose limits on how or under what conditions copyrighted material can be used, distributed, and reproduced; this could lead to invalidation in court and companies should prepare for this possibility.
Finally, it is critical to review the company’s employment contracts and contracts with contractors to detect if any trade secrets or confidential information is being shared with these parties. This step often goes overlooked during IP due diligence investigations but should never be overlooked.
3. Trademarks
Trademarks are distinctive words, phrases, images, or combinations of these that identify the source, owner, or developer of a product or service. Trademarks serve to distinguish products and services within the legal system as well as from consumers; they can also help shape brand identity in the public eye.
A mark must be unique to avoid infringement or confusion with another product, and it must also guard against others using the same word, symbol, or design for their own products or services. For instance, Coca-Cola cannot use “Coke” or “cola” in other soft drinks due to trademark infringement.
Three types of trademarks exist: fanciful marks, suggestive marks, and descriptive ones.
a. Fanciful marks
These are the most distinctive and strong; these consist solely of words created specifically to identify and differentiate a product or service being protected and cannot be found in a dictionary.
b. Suggestive marks
They are terms that directly describe a product or service – such as “Holiday Inn,” “All Bran,” and “Vision Center.”
c. Descriptive marks
These require extra protection due to their secondary meaning – that is, describing what the underlying item or service is about.
These are the most prevalent type of trademark, though they can also be a company’s logo, slogan, or even band name. Trademarks can be registered using either standard character format or special form format where stylized lettering plays an integral role in what’s protected.
The acquiring entity should investigate all trademarks used by the target to determine if they will infringe upon another company’s rights. Furthermore, it should review each mark’s registrations to guarantee they remain valid.
The acquiring entity should review all licenses to confirm they are valid and grant exclusive rights to them. This is especially crucial when the acquiring party plans on using the IP for selling or distributing its own products.
4. Trade Secrets
Trade secrets can be classified as intellectual property and protected by secrecy. Any confidential information that gives a business a competitive edge can be considered trade secrets. Trade secrets could include customer lists, manufacturing processes, recipes, or marketing strategies.
Trade secrets must be assessed during an IP due diligence review in terms of ownership, protection, and potential for infringement. These are the key points to remember when evaluating trade secrets.
a. Protect your trade secrets
Do this with confidentiality agreements and other means. Assess the effectiveness of digital and physical security measures to prevent unauthorized disclosure or access.
b. Ownership
Verify that the business is the owner of trade secrets through acquisitions or original development. You should check for agreements and contracts that could impact ownership.
c. Infringement
Assess the possibility of other parties infringing trade secrets, such as competitors or former employees. Examine for instances of misappropriation and unauthorized use of trade secrets.
d. Valuation
Assess the business’s trade secrets value. Examine the possible impact of trade secrets being disclosed or lost on the company’s competitive position.
e. Compliance
Make sure that your business is compliant with all legal and regulatory requirements related trade secrets. This includes state and federal trade secret laws, industry-specific regulations, or other similar legislation.
Trade secrets should be carefully evaluated to ensure they are adequately protected and that the business retains ownership and control. Businesses can preserve their competitive edge and reduce the risk of negative outcomes by conducting a thorough review of trade secrets.
No matter the size of your business or if it’s just getting off the ground, trade secrets are vital for protecting IP assets from competition. That is why it should always be included in any IP due diligence checklist.
Laws concerning trade secrets vary by state. Fortunately, most states have adopted the Uniform Trade Secrets Act (UTSA), which offers civil remedies for misappropriation of a trade secret.
For instance, if an employee or business partner violates a company’s trade secrets by stealing information or sharing it with third parties without authorization, the business can sue. Damages that may be recovered include attorney’s fees, exemplary damages and statutory damage as well as injunctive relief.
To determine whether your business has trade secrets that could be utilized as part of an IP strategy, contact an IP attorney for guidance. They also have the capacity to create an IP due diligence checklist that takes into account both current needs and potential threats.
Additionally, ensure all employees understand the significance of safeguarding trade secrets. This involves training them on what constitutes confidential information and the potential repercussions for unauthorized disclosure of trade secrets.
Additionally, make sure any information containing trade secrets is marked appropriately for the situation. This could involve posting a notice on a physical facility or computer monitor, labeling hardware or electronic files, or using other methods.
Additionally, make sure any documents containing trade secrets are only accessible to those who have signed and adhered to a non-disclosure agreement. Access should be monitored and logged securely so you know who is accessing what data.
5. Domain names
Businesses should consider domain names as an important aspect of intellectual property when conducting an IP due diligence review. Domain names are unique identifiers that can be used to locate websites on the internet. Domain name system (DNS), a hierarchical naming scheme, is used to translate domain names into IP addresses.
Domain names should be assessed in light of their ownership status, registration status and potential trademark infringement during an IP due diligence review.
Check the ownership of the domain, including the registrant and administrative contact. Verify that the domain name has been registered to the right person or entity and that there is no dispute over ownership.
Verify the registration status to make sure it is current and valid. Verify the expiration date, renewal and maintenance requirements. Assess the possibility of trademark infringement through the domain name. Examine for similarities between the domain name (and any pending or registered trademarks). Assess the likelihood of confusion among consumers and the possibility of trademark dilution.
Look for cybersquatting cases. This is when someone registers a domain name in order to make a profit off the trademark’s goodwill. Assess the possibility of trademark infringement and unfair competition. Consider the use of domain names in brand protection strategies. You might consider defensive registrations such as registering misspellings or variations of a trademark.
Domain names are an important part of IP due diligence. They should be carefully evaluated to ensure they are correctly registered and managed and that they do not infringe upon the rights of others. Businesses can safeguard their intellectual property rights by conducting an extensive review of domain names to minimize legal disputes and other negative outcomes.