Patent Due Diligence
15 Jan 2025
When you are negotiating mergers and acquisitions deals, licensing or investment deals, it is important to conduct a thorough due diligence to assist in making informed decisions. Patent due diligence is an important process in determining the value, scope, and risks associated with intellectual property (IP).
With the increased emphasis placed on innovation, many organizations have invested heavily in protecting their inventions. Patents represent significant assets for many organizations. Hence, conducting due diligence helps to:
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Provide an indication as to the strength and validity of patents.
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Identify any potential infringement risks.
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Uncover potential hidden liabilities, for example, ownership disputes.
Patent Due Diligence
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Understand the Scope of the Review
At the outset, it is important to identify the purpose of the due diligence. For instance, you should determine if the due diligence is conducted for a merger and acquisition, licensing deal, or infringement risk opinion.
Next, you should identify patents, pending applications, and related IP that are part of the deal.
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Ownership and Chain of Title
It is critical to determine that the target organization is the legitimate owner of the patents. It is not uncommon for patent applications to be filed by one party, and during the course of prosecution or even after grant of the patents, such patent applications or patents may be assigned to another party. Hence, care should be taken to review assignment records (filed at the Patent Office) and to verify that any ownership transfer has been properly and timely recorded. Additionally, one should also determine if there are any liens or security interests that have been filed.
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Patent Validity and Strength
It is also important to evaluate and assess the validity and enforceability of the patent claims. While some patents have already been examined and granted by the respective Patent Offices, a third party may still challenge the validity of the patent subsequently in future proceedings. The Patent Office’s report is only prima facie evidence of validity and is not binding on the Court. Hence, it is important to conduct an independent prior art search and to provide an opinion on whether the patent is likely to meet the validity requirements should the patent be litigated.
It is also important to review the prosecution history of each patent or application. This involves going through the entire file history of communications with the Patent Office. For example, one should check whether any amendments or corrections made should not have been allowed, and whether any rejections made by the Examiner or Patent Office has been appropriately dealt with. At this stage, it is also useful to review any past or existing license agreements, litigation history or disputes. If the patent is granted, it is also important to check that annuities have been timely paid.
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Infringement Opinion or Freedom-to-Operate Assessment
Another key aspect to patent due diligence is to determine if working the invention in the target company’s patent will infringe any third party granted patents. To conduct this review, a Patent Attorney will have to search the database for any granted patents that are closest to the product or methods. A detailed analysis will then have to be conducted to determine whether the product or service infringes any patent claims. At this stage, it may also be useful to identify pending applications which are close to grant and keep such patent applications in a watchlist, since such patents may be a potential threat when they are granted. Third party observations may also be lodged against such patent applications.
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Patent Family
Patents are usually filed in more than one country. Hence, it is also important to review the patent for corresponding patents filed in other countries. The above steps should also be undertaken in each country which is of key interest to you to ensure that they comply with local law.
Conclusion
Patent due diligence is a meticulous process requiring expertise and should not be taken lightly. Stakeholders should engage professionals such as Patent Attorneys in conducting due diligence. By systematically conducting due diligence, stakeholders can make informed decisions and thus mitigate risks.
Disclaimer: This content is for informational purposes only and does not constitute any legal advice.