IP Due Diligence

• Published date: 25 May 2021
• Subject Matter: Corporate/Commercial Law, Intellectual Property, Corporate and Company Law, Copyright, Patent
• Law Firm: J A Kemp LLP
• Author: Mr Henry Hunt-Grubbe and Amanda Simons

Whatever the technology, IP can form a significant intangible asset for a company. In addition to legally protecting the company's products and activities from being copied by competitors, IP can generate revenue through licensing or sales, it can protect market share and increase return on a company's R&D investment. IP therefore plays a vital role in establishing the value of a company. When looking to invest in a company that holds IP, a good understanding is needed, not only of what IP a company holds, but how that IP adds value to the company. IP is not just a matter of numbers: the strengths and weaknesses of each IP right need to be understood to be able to evaluate the portfolio as a whole. And an ability to assess these strengths and weaknesses in a timely manner is crucial.

We discuss here how a company's IP can be assessed in a due diligence process, as well as some common misconceptions about IP that are frequently encountered.

Due Diligence: Establishing the IP Rights

An IP due diligence investigation firstly needs to determine all of the registered IP rights and unregistered IP rights that a company may have. Patents are generally the most valuable right as they provide the strongest protection, preventing others from using a company's invention. Trade marks also play a key role. Many companies rely heavily on the goodwill associated with their brands - Coca Cola, Apple and Nike being just a few of the many examples. For these companies, protecting the respect afforded to the brand via a trade mark is vital. However, other lesser- known types of IP, such as know-how for protecting trade secrets where no patent is in place, copyright for protecting software and database right for protecting databases, are also becoming increasingly important.

Most companies now develop their own software and providing a service to customers through an App is commonplace. Software may be protected by copyright. Unlike patents and trade marks, where a company needs to apply to register their rights, copyright is an IP right that can arise automatically. Copyright protection for software depends on the circumstances, in particular whether or not open source software has been used, so careful consideration is needed of what rights apply.

The service sector is increasingly reliant on information, and details of customers and other data that has been compiled in company databases can have significant value. Many companies also invest heavily in compiling databases...