The importance of IP due diligence when preparing for sale

Kerry Rees, Partner at HGF

HGF is one of the largest intellectual property (IP) firms in Europe, with approximately 200 patent attorneys, trademark attorneys, IP solicitors and attorneys-at-law across 22 offices in seven European countries. In this article, they outline the importance of IP due diligence when preparing for sale.

With a focus solely on IP and related work, HGF’s scale and geographical reach allow the firm to provide a wide-ranging mix of scientific rigour (all of the firm’s patent attorneys have a first degree in a scientific discipline, many with PhDs and post-doc research experience in their technical field) together with expert knowledge of IP law. The firm also has a group of IP transactional and litigation solicitors who work with the patent and trademark attorneys to provide a dynamic and complete IP solution.

IP due diligence

IP due diligence is the assessment of the IP risk associated with a transaction, such as the sale and purchase of a business, or financial investment in a business. A typical IP due diligence will review the status and enforceability of IP, ownership, inventorship, freedom to operate, potential or actual third-party challenges, and licensing activities. The degree to which each of these is investigated will vary depending on the nature of the transaction. However, an important step in assisting with an efficient due diligence is to be clear what IP assets are owned or are part of the sale.

Taking an IP inventory and keeping an up-to-date list of IP assets is essential. Some IP rights are registrable, and it may be possible to obtain information on those from public registers. Some registrable rights might not have been published yet and other valuable IP assets such as trade secrets/know-how are, obviously, not public. Having confidentiality agreements in place with prospective investors or purchasers is important before discussing such assets.

Potential effect on sale

If potential holes in a company’s IP strategy are found in the due diligence review, this can materially affect the sale value of a business, whether a sale or purchase of a business completes, or whether a company can secure investment from private equity or a VC investor, for example, and the terms of that investment. This is why a business in which IP is likely to be a valuable asset, such as a technology-based business, should really nail down its IP strategy at an early stage of its development to ensure that it is aligned with the business plan, particularly where future investment from private equity or a VC is needed or where the exit strategy is trade sale, M&A or an IPO, for example.

The relevance of IP to each transaction or financial investment will vary such that there is no one-size-fits-all approach when it comes to IP due diligence. HGF has developed a bespoke suite of IP due diligence-related services, called HGFVenture, which is tailored to each transaction. The attorneys at HGF like to get to the heart of a business in order to identify what is the best IP strategy to support the business aims and secure maximum return on investment, and this forms part of the HGFVenture approach.

Kerry Rees, a Partner at HGF, would welcome the opportunity to discuss how HGFVenture may benefit your business.

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